The SA arm of cigarette maker British American Tobacco (BAT-SA) says it will add to the tally of job losses as illicit tobacco traders continue to gain market share at its expense.
The company said on Friday it had entered into consultations as it needs to cut 300 jobs in the country because of the failure of the authorities to curb illicit cigarette sales.
Illegal cigarettes accounted for 42% of sales in the informal market by November 2018, from 33% earlier in the year, the Tobacco Institute of Southern Africa said at the time. This meant the SA Revenue Service (Sars) was expected to lose about R8bn in taxes annually.
An Ipsos study published in 2018 found an illicit brand had become the top-selling cigarette product in SA. The brand was sold at about R10 a pack, indicating that it was evading the R17.85 owed to the government for each packet of 20 sold.
Companies ranging from miners to banks announced a string of job losses in the last few years as economic growth is constrained by rampant public corruption, worsened by inadequate electricity supply.
"Following a 30% decline in our business since 2012, it is unavoidable that we now adjust the size and structure of our business," Johnny Moloto, BAT-SA’s head of external affairs said.
Finance minister Tito Mboweni’s recent pledge to tackle the illegal market "is encouraging", as is the re-establishment of Sars’s illicit economy unit, which Mboweni said in early January would be fully operational by June. "The size of the illegal trade [Sars is] trying to tackle, however, remains massive and will require an escalating and sustained effort to have a meaningful impact, recover tax revenues and prevent further job losses," Moloto said. But Sars’s recent actions had "saved some jobs and minimised redundancies" at BAT-SA.
In 2018, Marcelo Nico, Southern Africa MD for Marlboro maker Philip Morris, said the illegal cigarette trade was "the single biggest issue for
the industry".
Meanwhile, Sunday Times’ Business Times reported at the weekend that Sars wanted R143m from BAT-SA "for
alleged tax fraud and evading excise duties".
The newspaper said the revenue authority accused the company of receiving undue
tax rebates. BAT-SA said on Sunday the report was "false".
The rebates were received after BAT-SA applied to Sars to reprocess millions of cigarettes, including the Princeton brand, because of apparent manufacturing defects. However, Sars reportedly claimed that BAT-SA had lied about the reasons for reprocessing the cigarettes.
The revenue authority said BAT-SA should pay a R5m fine, R102m in excise duties and forfeitures and R36m in interest.
"We don’t owe any money for underpaying tax ... We are, in fact, owed R30m for overpaying," Moloto said. BAT-SA, which paid R9.1bn in taxes in 2018, "would direct its R30m rebate" to fight the illegal cigarette trade.
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