Edward Kieswetter kisses R20 billion goodbye

Tax Justice South Africa revealed that South Africa’s illegal tobacco trade cost the country more than R20 billion in tax revenue last year.

Put another way, the organisation estimated that the illegal tobacco trade has cost the country R50 million per day in lost tax revenue.

The organisation said R20 billion would pay for solar systems to take 20 small towns off the Eskom grid forever. 

It is estimated that almost 15 million illegal cigarettes are smoked in South Africa every day, and 3 out of 4 informal retail shops sell illegal products.

According to the Economics of Tobacco Control Unit at the University of Cape Town, the illegal cigarette trade has increased by 1,000% in a little over a decade.

The South African Revenue Service (SARS) has estimated that illicit trade costs the economy R100 billion annually and robs the country of valuable resources.

A report published by Business Unity South Africa (BUSA) earlier this year said illicit trade is one of the biggest threats to stability and economic growth in South Africa.

The report estimated that the country loses around R250 million a day in tax revenue, equating to R91 billion annually.

It found South Africa faces challenges from illicit trade in alcohol, cigarettes, fishing, mining, counterfeit electronics, pharmaceuticals, food, and apparel.

SARS Commissioner Edward Kieswetter has previously highlighted that illicit trade costs South Africa R250 million daily.

Furthermore, the OECD estimates that South Africa is losing $3.5 billion to $5 billion yearly, or more than 1% of its GDP, to illicit financial flows. 

The Bhekisisa Centre for Health Journalism reported that, between 2002 and 2009, illicit trade constituted around 5% of the cigarettes sold in South Africa.

However, today, this number has risen to 54%, which not only leads to lower tax revenue but also renders the country’s anti-smoking plans less effective.

Bhekisisa attributed the rise in illicit cigarette trade to several events that occurred between 1990 and 2020.

Between 1990 and 2010, tobacco giants significantly increased their prices in response to higher sin taxes. This encouraged smaller manufacturers to enter the market at far lower prices.

In 2014, the SARS commissioner at the time, Tom Moyane, also dismissed the organisation’s illicit trade sleuths and senior tax experts, Bhekisisa said.

In 2020, the Covid-19 pandemic gave rise to government bans on the sale of cigarettes. However, the government did not ban the rest of the tobacco supply chain, like exporting and manufacturing, which saw the illicit cigarette trade boom.

This move cost SARS R5.8 billion in lost tax revenue, according to Bhekisisa.