At least a quarter of the cigarette market in SA is illicit, resulting in significant losses to the fiscus, Tobacco Institute of Southern Africa chairman Francois van der Merwe told MPs on Wednesday.
Van der Merwe was one of a number of presenters who appeared before Parliament's standing committee on finance to address the question of the illicit tobacco trade. Also present were representatives of Treasury, the South African Revenue Service (SARS), the Financial Intelligence Centre, the National Prosecuting Authority (NPA) and the Hawks.
Van der Merwe referred to estimates that the fiscus had lost more than R27bn in unpaid taxes on tobacco products between 2010 and 2016, and that the trend was continuing.
"One of the consequences of tax manipulation by certain players is that the legal, tax-compliant tobacco sector is losing market share to the illegal sector at an alarming rate. At least a quarter of the cigarette market in SA is illicit with certain channels selling 50% to 100% [of] illicit product."
The illicit trade not only affected manufacturers but threatened the sustainability of tobacco farmers. Van der Merwe said the legitimate tobacco sector contributed R23bn to GDP, paid about R22bn in tax and supported 108,475 jobs.
NPA acting special director of public prosecutions Marlini Govender referred to estimates that SA ranked among the top five countries in the world with the highest incidence of trade in illicit cigarettes, along with Malaysia, Iraq, Brazil and Pakistan. She noted that the profit margin on the illicit trade was very high.
Govender said the illicit trade was a trans-national problem involving neighbouring countries and required effective collaboration in the region to prevent consignments crossing SA’s borders. "The porous nature of our borders and the element of corruption [in allowing] consignments to pass are factors which act as enablers." She added that collaboration with the private sector and within the criminal justice sector was also required.
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