The commissioner of the South African Revenue Service (Sars), Edward Kieswetter, has warned that South Africa is not winning the war against criminal syndicates operating in the illicit economy.
Kieswetter was responding to the imminent closure of the only plant of British American Tobacco (BAT) in South Africa due to the proliferation of illicit cigarettes. The international tobacco major said illicit cigarettes now constitute 75% of the market.
He said the black market, which stretches from cigarettes, smuggled gold and fuel adulteration to counterfeiting, has become structural.
“Take the tobacco sector as a cautionary tale. Once a robust industry supporting tens of thousands of jobs, it has been devastated by illicit trade. Today, about three out of every four cigarettes sold in South Africa are illegal — untaxed and often produced or smuggled by organised crime syndicates," Kieswetter said.
“The result is stark: the state loses R18bn-R28bn a year in tobacco taxes; legitimate manufacturers cannot compete with dodgy 20-a-pack specials for R10, well below the minimum collectible tax of R26.22.”
BAT, whose shares are traded on the JSE and in London, earlier this month said it would mothball its Heidelberg plant at year’s endand instead import tobacco to service the local market.
The same networks that trade illicit cigarettes frequently diversify into illegal mining, gold smuggling, illicit alcohol, counterfeit goods and complex money‑laundering schemes.
— Edward Kieswetter, Sars commissioner
A study by Ipsos, commissioned and paid for by BAT, found the availability of illegal cigarettes in South Africa has become endemic, with nearly eight in 10 South African retailers selling such products, triple the number reported three years ago.
The study, which surveyed more than 4,000 outlets countrywide, found about 69% of retailers were selling cigarettes at less than R20 a pack and nearly 80% were selling them below the R26.22 minimum price.
More worryingly, Kieswetter said illicit tobacco is not an isolated failure but a gateway into a far wider criminal economy.
“The same networks that trade illicit cigarettes frequently diversify into illegal mining, gold smuggling, illicit alcohol, counterfeit goods and complex money‑laundering schemes,” Kieswetter said.
“Tobacco profits are reinvested into other illicit sectors using shared logistics routes, compliant retailers, cross‑border channels and shell companies.
“This interconnectedness is the defining feature of South Africa’s illicit economy.”
Sars and its sister law enforcement agencies aim to “crush” the illicit fuel industry, which syphons nearly R4bn from the fiscus annually.
The agency and the police, through the National Joint Operational and Intelligence Structure (Natjoints), conducted 23 operations across Gauteng, Mpumalanga and KwaZulu-Natal last year.
A team comprising Sars officials and police detained nearly 1-million litres of contaminated diesel fuel — with analysis in some instances showing the seized diesel had up to 68% paraffin content.
The agency also suspended three licences for non-compliant tobacco production.
The Financial Intelligence Centre has provided intelligence reports to Sars to assist in investigations of criminal syndicates, and together they have identified illicit markets in tobacco, precious metals, fuel and procurement fraud.
‘No victory — yet’
Through these efforts Sars has recovered R85bn from illicit activities since 2020/21.
Kieswetter said while progress has been made in reining in the illicit economy, much more still needs to be done by law enforcement agencies.
“We are not winning the war — yet. The scale of the illicit economy means enforcement is constantly chasing volume. For every warehouse seized or consignment intercepted, syndicates attempt to adapt, reroute and scale,” he said.
“Border capacity remains uneven, legal and policy gaps persist, and penalties do not always deter well‑resourced criminal kingpins. Corruption and collusion — whether at ports, factories or distribution points — can still unravel enforcement gains with devastating speed.”
Minister of finance Enoch Godongwana in the medium-term budget policy statement in November warned about the growing markets for illicit cigarettes, alcohol and fuel.
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