Significant new resources need to be allocated to revenue service Sars to ensure that the legal cigarette market can be taken back from criminals in the aftermath of the lockdown smoking ban, says cigarette maker BAT South Africa.
“These illicit suppliers are not, suddenly, going to become compliant and start obeying the law and paying taxes when the ban is eventually lifted. They evaded taxes prior to the lockdown, they’ve made billions tax-free during the ban and they will evade taxes after the ban,” BAT-SA said in a statement.
The ban on sales of tobacco products in lockdown has so far cost more than R4bn in excise taxes alone and substantial job losses, the company said.
It referenced the report by a UCT research unit on the economics of excisable products this week that showed 93% of SA’s approximately 11 million smokers are still able to purchase cigarettes, “meaning that millions of illegal transactions are taking place across the country every day”.
“The market has been completely taken over by illicit cigarette suppliers at the expense of law-abiding and tax-compliant manufacturers.”
The company rejected the view by the UCT research team that “instead of imposing a sales ban to prevent people from smoking cigarettes, the government would have been able to achieve a similar outcome by substantially increasing the excise tax [as] most smokers that have quit smoking during lockdown did so because the price of cigarettes became unaffordable”.
Replacing the prohibition with excise increases would compound the devastating damage of the past four months, said BAT-SA.
“At the moment the tobacco market in SA is being run and dominated by illicit suppliers who, quite obviously, are breaking the law and making billions of rands in illicit profits,” commented BAT-SA’s head of external affairs Johnny Moloto.
“A dramatic increase in excise taxes … would be second only to the ban itself as an absolute gift to the criminal suppliers. It would prevent the legal and tax-compliant industry from taking some of the market back from the illegal suppliers and make SA the largest illicit tobacco market in the world.”
Moloto said Sars faces “a massive battle” to return meaningful tax collection to the country’s tobacco market after the ban. BAT-SA believes that the revenue service requires significant extra resources to impose a zero-tolerance approach to evasion when the ban is lifted.
“If the country is to capture any of the taxes it so desperately needs, then Sars needs to be allocated the required resources to establish a nationwide task force,” said Moloto.
The UCT report suggested that there is significant round-tripping of cigarettes supposedly destined for the export market making their way back into SA during lockdown, Moloto noted.
“BAT-SA is working closely with Sars and have implemented Sars’ new processes and protocols for production and export.
“We have Sars officials at our factory who are controlling production volumes, auditing the export declarations, verifying the container loading and sealing the containers. This process also includes the checking of containers at the ports of exit by customs officials. Furthermore, we are obliged to send weekly production and forecast reports to Sars.
“Although some of these new processes have affected our production efficiency, we recognise the importance of these steps and are complying with them 100%.”