South Africans smoke 37 billion cigarettes a year – SARS gets tax from only 13 billion 

In 2023, South Africans smoked 37 billion cigarettes, but the South African Revenue Service (SARS) only collected tax on 13 billion, leading to billions in lost revenue.

This was revealed by the SA Tobacco Transformation Alliance (SATTA), which estimates the lost revenue to be at least R24 billion, as excise tax is around R1 per cigarette.

SATTA spokesperson Francois Van der Merwe told Newzroom Afrika that the illicit cigarette market has taken over the industry.

The illicit market now represents between 65% to 70% of the total market – the highest in the world.

Van der Merwe explained that this is a casualty of the Zuma era, where former SARS commissioner Tom Moyane destroyed the revenue service. This shot illicit cigarette trade up to 40% of the market. 

“Then, the mess that the government made with the sales ban during Covid-19 handed the total tobacco market on a golden plate to the illicit traders, and we’ve never ever recovered after that,” he said. 

“The legal, taxpaying industry with a value chain right down to the farmers is a shadow of what it was, and that is an absolute disaster because the country is at a loss.”

Van der Merwe said it is imperative that the National Treasury provide SARS with more resources to tackle the problem.

“This is the best business case that the National Treasury can make. If they invest R50 million or R100 million, there’s R20 billion in one year as a return on investment,” he said.

“At the moment, excise tax is more than R1 per cigarette. So, in the last year alone, SARS lost R24 billion. SARS is doing what they can, and we commend them, and we support them, but much more needs to be done.”

Van der Merwe said the illicit market has far-reaching negative consequences for the country.

The illicit trade is impacting tax revenue but also costing jobs and damaging public health, as illicit trade makes cigarettes very cheap. 

British American Tobacco South Africa recently announced that it has scaled down its delivery supply chain due to record high illicit cigarette trade, which cost over 500 South African jobs.

“It’s a lose-lose-lose situation, and we need much more. Treasury needs to invest in SARS so that they can have more forensic capabilities,” Van der Merwe said.

SATTA concerns were echoed in a recent study by the University of Cape Town, which revealed that the government lost R119 billion in excise and VAT revenue between 2002 and 2022 because of the illicit cigarette market.

Nicole Vellios and Corne van Walbeek from the research unit on the economics of excisable products at UCT’s School of Economics conducted the study.

This research was funded by the Bill & Melinda Gates Foundation through the African Capacity Building Foundation.

The researchers found that the government has been losing significant revenue by not receiving excise and VAT from all cigarettes consumed in South Africa.

“This trend is likely to continue if the government does not secure the supply chain from the point of production to the point of sale,” they said.