The SA Revenue Service (SARS) has urged MPs to scrap the draft tobacco bill’s provisions on plain packaging, arguing that removing branding will make it harder to spot counterfeit cigarettes and hamper efforts to crack down on the illicit trade.
The Tobacco Products and Electronic Delivery Systems Bill, currently before parliament’s portfolio committee on health, proposes introducing plain packaging and graphic health warnings that cover 65% of the pack for tobacco products and vapes. Cigarette manufacturers are currently only required to place text warnings over 15% of the front of a pack.
“Our advice would be to proceed with caution … [plain packaging] takes away the brand allure of cigarettes, [but] it also facilitates counterfeiting. We are convinced it will positively aid the illicit component,” said SARS commissioner Edward Kieswetter.
Illicit trade is half the market
Illicit cigarette manufacturers do not pay excise tax to Sars, enabling them to undercut the prices charged by tax-compliant companies. The illicit trade has surged since the tobacco bans imposed by the government in response to the Covid-19 pandemic and now constitutes at least half the market, said Kieswettter. Sales of illicit cigarettes cost the fiscus about R20bn in revenue foregone in 2024/25, according to documents presented to the committee.
A recent Ipsos survey commissioned by British American Tobacco (BAT) found more than three-quarters of SA shops that sold cigarettes were offering products that cost less than the minimum tax threshold, indicating they were illicit products. BAT estimated that the illicit trade costs Sars R28bn a year.
Cigarette manufacturers and the SA Tobacco Transformation Alliance (SATTA), which represents tobacco farmers, processors and manufacturers, have previously appealed to MPs to eliminate the bill’s plain packaging measures on the grounds that packaging devoid of branding will strengthen the hand of counterfeiters.
Kieswetter said the illicit tobacco trade had changed since the Covid-19 pandemic and was now driven by increasingly sophisiticated criminal syndicates. “It is something that should scare all of us,” he said. “Not only did the illicit trade erode tax collection, but many products did not live up to the standards of regulated cigarettes and criminal activity had a negative impact on social cohesion,” he said.
Syndicates involved solely in the illicit tobacco trade had diversified into other sectors, and foreign cartels had developed relationships with local operators to enter the SA market, he said.
The criminal tobacco trade was “just a sliver” of the illicit economy, which sees annual illicit financial outflows of between R50bn and R90bn from activities in industries ranging from fuel to mining, he said.
Minimum unit pricing needed
Kieswetter called for the introduction of minimum unit pricing for cigarettes and e-cigarettes, which would set a floor price below which those products could not be sold. SA already has regulated pricing in other sectors, including petrol, liquid petroleum gas, electricity and pharmaceuticals, he said.
Minimum pricing for tobacco is intended to reduce consumption by making products less affordable. But it would also remove the incentive for illicit trade, disrupt the economics of the black market and deliver a systemic shock to illicit operators that would restore market integrity, said Kieswetter.
Law enforcement needed to be stepped up across the entire tobacco value chain, from growers to retailers, said Kiewswetter. “This is not a Sars’s problem, but a whole-of-government problem,” he said.
Deputy police minister Shela Polly Boshielo told MPs that most of the illicit cigarettes that were smuggled into SA came from Zimbabwe, Mozambique and Botswana. She did not provide figures for the estimated split between imported and locally manufactured illicit products.
