Illicit vapes threaten tax revenue as SA’s market surges

The illicit vape market has emerged as a growing threat to tax revenue.

This comes as South Africa’s vape market grows rapidly, creating new opportunities for tax collection but also for illegal operators to avoid paying duties.

South Africa introduced an excise duty on vaping products in June 2023. The tax applies to nicotine and nicotine-free liquids and disposable devices and was increased to R3.18/ml for the 2024/25 financial year. Manufacturers are required to register with the South African Revenue Service.

However, illicit products often bypass these regulations and taxes, making them cheaper and more attractive to consumers while depriving the government of revenue.

The legal vape market in South Africa is expected to grow from $167.6m (R2.67bn) in 2024 to $410.2m by 2030, according to a recent study by market intelligence and consultancy firm Prescient & Strategic Intelligence. Growth is being driven by increasing health awareness, changing lifestyles, rising incomes and smokers switching to alternatives they see as less harmful than cigarettes.

The study said the vape market is highly fragmented, with many local and international brands competing for market share, with some businesses operating illegally and selling products without licences or regulatory approval. “The lax regulatory standards for these products also allow small, local companies to market their products, often illegally and without a licence,” it said.

It said e-commerce has made it easier for illegal sellers to reach consumers directly.

The popularity of vaping is especially high among young people, particularly those aged 16-24, driven by attractive designs, flavoured liquids and lifestyle marketing.

The study found flavours such as fruit, menthol, beverages and desserts have made vaping more appealing, while disposable devices and customisable products have increased convenience.

The availability of cheap illegal products has made the problem worse. High taxes and weak enforcement have encouraged a black market that offers cheaper cigarettes and vape products.

British American Tobacco (BAT), in its 2025 Combined Annual and Sustainability report, stated that it is a global challenge.

“Stricter nicotine regulations globally have also created significant challenges for the legitimate industry,” it said. “For example, in 2024 the illicit market is estimated to have accounted for 60% of global vapour product sales on a unit basis, being more than 76% of liquids (in litres) sold.

“We estimate that in the US illegal flavoured and single-use vapour products account for 70% of the total vapour market.”

“This rapid growth has in part been fuelled by regulatory gaps, particularly in regions with restrictive or unclear frameworks and inadequate enforcement. As a result, illicit products have proliferated in the market.”

BAT has been promoting its “Better Tomorrow” strategy, which aims to reduce cigarette use by encouraging smokers to switch to smokeless alternatives such as vaping.

The company has said smokeless products are central to its long-term future as cigarette use declines globally.

This means illicit trade is not only affecting BAT’s cigarette business but also undermining its future plans.

“Illicit products (including new categories) could harm consumers, damaging goodwill and/or the category (with lower volumes and reduced profit), potentially leading to misplaced claims against BAT, further regulation and a failure to deliver the corporate harm reduction objective,” it said.

The group said it is stepping up efforts to combat illicit trade through dedicated anti-illicit trade teams operating at regional and country levels, working with governments, law enforcement and other industry players to identify and stop illegal products.

BAT also monitors illicit online sales, shares intelligence with authorities and uses specialised forensic laboratories and compliance teams to support investigations, it said.

“As illicit e-commerce becomes a larger threat to the business, the group determines the scale of illicit online sales to highlight the threat to authorities and to enable them to take direct action against websites selling illicit products,” it said.

“Illicit trade reduces our ability to reduce the health impact of our business, it undermines policies of governments with respect to underage tobacco users and creates bases for inappropriate regulation.”

Illegal cigarettes are already hurting its South African operations. Business Day recently reported that illegal cigarettes already dominate the South African market, making up about 75% of total sales.

This has forced BAT to plan the closure of its cigarette plant in Heidelberg, Gauteng, which is operating at only 35% of its capacity. The company has booked a £14m (R305m) impairment on the plant as it prepares for its mothballing. It said illicit trade has made local production unviable, forcing it to rely on imports.