Illegal plastic bag trade dodges R1bn in taxes

Years after the SA Revenue Service (Sars) uncovered and intervened against plastic producers and wholesalers accused of withholding the environmental levy on supermarket plastic bags, the practice appears to be continuing, with authorities struggling to stamp it out.

After moving against plastic manufacturers and wholesalers in 2022 for allegedly failing to pay over the environmental tax levied on shopping bags, the tax authority now admits that — while smaller in scale than other illicit economic activities — the practice continues to cost the fiscus millions.

Sars told Business Times that financial investigations into areas such as plastic bag levies involve a range of complexities during the evidence-gathering and analytical phases.

“Plastic bags are typically unnumbered, high-volume, disposable and consumable products, which lend themselves to a variety of fraudulent schemes, not unlike those found in the tobacco, fuel and alcohol sectors.

“One particularly worrying element is how traders, retailers and distributors seem willing to accept and purchase products from suppliers at values clearly below what is possible in the market. This ... indicates a level of complicity or, alternatively, opportunistic profiteering that must be halted.”

While Sars continues to grapple with illicit trade in alcohol, cigarette and fuel, the non-payment of the 32c on plastic bags persists, leaving compliant manufacturers unable to compete with offenders, sources close to the retail plastic bag production value chain told Business Times.

For the 2024/25 financial year, the government collected R698.71m from the environmental levy on plastic bags. Sars estimates that revenue leakage within the value chain amounts to about R1bn over the past five years.

It said buyers should become more sceptical when products are sold below acceptable market cost, as this may indicate taxes have not been paid. “Not doing so suggests acceptance of such criminal behaviour,” Sars said.

“As part of the Expanded Illicit Economy Strategy 2025/26, Sars started engaging and formalising partnerships with various agencies in the criminal justice system, trade and industry bodies, academics, research institutions, and private sector representatives — including Business Against Crime and private groupings — to [better understand] the different forms of illicit profiteering and fraud prevalent in high-risk economic sectors, and how to respond [more effectively].”

Sars said it had engaged various stakeholders in the plastic bag manufacturing sector to explore tactical and investigative interventions, as well as more systemic solutions. “Part of this effort includes formalising a public-private partnership model, which will be field-tested in due course. In addition, Sars has obtained a legal opinion to seek to hold retailers and distributors of illicit products — including plastic bags — personally liable for uncollected taxes.”

Sars said it is now able to demonstrate that some retailers and distributors knowingly purchased and sold plastic bags that had been dealt with contrary to the Customs and Excise Act. “Sars will hold them directly liable by way of assessments, schedules, penalties, punitive interest and, where applicable, criminal investigations and prosecutions.”

The revenue service confirmed that — under its expanded illicit economy strategy — the plastic manufacturing sector has been identified as a high-risk sector receiving focused enforcement attention. “These high-risk economic focus areas form part of Sars’ participation in the national illicit economy disruption programme announced by the president during the state of the nation address in February — and will be further developed as [it] takes shape.”

Revenue generated from environmental levies is managed in accordance with fiscal legislation and National Treasury reporting frameworks, Sars said, adding that the revenue forms part of the government’s broader environmental and revenue management strategy.

Plastics SA executive director Anton Hanekom said the organisation remained deeply concerned about ongoing non-compliance and fraudulent activity linked to the plastic bag levy system and illicit trade.

“There’s a growing illicit economy within the plastic bag manufacturing sector. Certain operators are either not charging the legally required environmental levy at all, thereby undercutting compliant manufacturers, or they are charging the levy to retailers and consumers but failing to remit those funds to Sars as required by law. This creates an unsustainable and unfair operating environment for legitimate manufacturers who comply with levy obligations and regulatory requirements.”

Hanekom warned that if left unchecked, the continued expansion of illicit trade threatens the long-term viability of compliant businesses within the sector. “The plastic bag levy environment has been identified as one of the sectors requiring urgent intervention and enforcement attention.”

He said that since the 2022 intervention, Sars has continued engaging industry stakeholders and investigating levy non-compliance, but enforcement capacity and resource constraints remain a challenge. “There is also an argument for a more transparent process where the NRCS [National Regulator for Compulsory Specifications] and Sars publish lists of registered and levy-paying companies on their websites.

“Each bag must have its NRCS registration number printed on it. This will make compliance much easier, as interested parties can easily check at retail level whether a bag manufacturer is compliant and paying levies.”

Business Times approached several retailers over the past week to establish what safeguards they have against non-compliant plastic bags entering their supply chains.

SPAR Southern Africa national PR and sponsorship manager Mpudi Maubane said the retailer sourced plastic carrier bags from suppliers required to comply with all relevant legislation, including rules governing the plastic bag levy.

“SPAR expects suppliers to operate responsibly and takes any instances of non-compliance seriously. Approved suppliers are required to submit accurate environmental levy declarations within prescribed timelines and make the necessary payments to Sars in line with applicable legislation.”

She said SPAR was not directly involved in collecting or paying the levy and — because levy reporting is not disclosed to retailers — the company has little visibility into industry-wide compliance levels. “Beyond compliance, SPAR is focused on reducing the environmental impact of plastic carrier bags across its value chain. As of 2024, most SPAR-branded carrier bags in South Africa are made from 100% recycled materials, with a minimum of 70% post-consumer waste, and are fully recyclable,” said Maubane.

“This contributes to diverting about 4,000 tons of plastic waste from landfills annually, while also contributing to a meaningful reduction in carbon emissions. Additionally, the group is proud to be a founding member of the SA Plastics Pact.”

The pact brings together business, government and civil society to drive measurable change in plastic packaging production, use, collection and recycling. Maubane said SPAR’s plastic packaging targets are aligned with both the South African plastics pact and extended producer responsibility requirements.

Business Times