Edward Kieswetter watches R11 billion disappear

The South African Revenue Service (SARS) loses out on R11 billion a year in revenue from the illicit alcohol trade, with the country’s pandemic-era lockdowns boosting demand and authorities lacking the capacity to clamp down on suppliers. 

Out of the seven African countries measured by Euromonitor’s global study on the illicit alcohol trade, South Africa experiences the largest fiscal loss. 

Illicit trade has become a significant problem in South Africa, with SARS estimating the economic costs of trade at R100 billion annually. 

Most of the focus has been on the illicit cigarette trade, which flourished due to South Africa’s pandemic-era lockdowns prohibiting the sale of tobacco products. 

This pushed many to resort to illegal traders to get their hands on cigarettes, and many smokers have not returned to traditional tobacco dealers and products.

Coupled with this rise was a severely weakened SARS that was hollowed out during the era of state capture. 

While the focus has been on the illicit cigarette trade, the illegal production and sale of alcohol has also flourished in South Africa. 

The Transnational Alliance to Combat Illicit Trade (TRACIT) released a report on the rise of organised crime, corruption and illicit trade in South Africa. 

It said the South African market for illicit alcohol is historically large and was boosted by many of the same factors that fuelled the rise of the illegal cigarette trade. 

“South Africa’s nationwide ban on domestic sales of alcohol production and transportation during the pandemic had a significant effect on consumption patterns and provided a massive boost to organised criminal involvement in the production and supply of illicit alcohol,” TRACIT said. 

Illicit alcohol products come in a variety of forms, making it difficult for SARS and other authorities to tackle the growing trade.

Alcohol produced legally but sold without the collection of excise taxes and VAT is considered illicit contraband. Thus, many of the products sold in the illicit market are produced locally and legally but are then ‘bootlegged’ and sold very cheaply, without any tax levied. 

Other products may be produced illegally, have fake labels and trademarks, violate intellectual property rights, and not meet health regulations. 

Such products are very rare, making up around 2% of the illegal market, according to TRACIT. 

Uphill battle for SARS

SARS is finding it very difficult to tackle the illicit trade of alcohol in South Africa, as informal traders have established themselves in the market and have proven hard to displace. 

During the Covid-19 pandemic, illicit traders seized the opportunity to provide cash-strapped consumers with easy access to cheaper alternatives – doubling their market share in less than a decade. 

By volume, illicit sales currently represent 22% of the total South African alcohol market. TRACIT said this undid a decades-long drive to formalise the sector and regulate its trade. 

The organisation said SARS will find it difficult to combat as the products are extremely attractive to South African consumers due to their low prices. 

Its research showed that illicit alcohol products were, on average, 43% cheaper than their legal counterparts.

The demand for cheaper, unregulated, illicit alternatives is amplified by high levels of unemployment and reduced disposable income due to inflation.

Furthermore, the issue involves many law enforcement agencies struggling to cooperate effectively. 

TRACIT said the only way to deal with the illicit market is through sustained, concerted efforts between all responsible government bodies, from the police to SARS and the new Border Management Authority. 

These bodies must also be adequately resourced and funded, with the negative effect of state capture severely handicapping their efforts to contain illicit trade. 

TRACIT also recommended that SARS work more closely with the Reserve Bank and the Financial Intelligence Centre to go after the profits generated by illicit trade.