On February 25 finance minister Enoch Godongwana announced a 3.4% increase in excise taxes on tobacco products, in line with the expected inflation rate. A pack of 20 cigarettes will now carry an excise tax of R23.58, up from R22.81 last year.
No surprises there. Since 2010 tobacco excise tax increases have largely tracked the expected inflation rate, with only occasional, modest adjustments above it. This contrasts sharply with the period between 1994 and 2009, when the National Treasury consistently raised excise taxes above inflation, driving up the real (inflation-adjusted) price of cigarettes.
The impact was unambiguous: smoking prevalence dropped from roughly 32% in the early 1990s to below 20% by 2010. At the same time, real excise revenue more than tripled, benefiting both public health and government revenue. It was a clear policy win-win.
However, since 2010 the illicit cigarette trade has seemingly held the Treasury back from pursuing more aggressive excise tax hikes. Research from the University of Cape Town’s research unit on the economics of excisable products finds that since 2020 more than half — and likely closer to 60% — of cigarettes sold in South Africa are illicit, with excise taxes either partially or completely unpaid.
The tobacco industry would have the Treasury believe that excise tax increases are the primary driver of the illicit cigarette trade in South Africa. This argument is not only self-serving but also unsupported by credible evidence. Peer-reviewed research finds no evidence of a growing illicit market during the 1990s and early 2000s, when cigarette taxes were increased significantly.
In fact, the illicit trade in cigarettes only became a major issue in South Africa from 2010 onwards. Since 2011 the inflation-adjusted excise tax on cigarettes has increased only marginally. Yet illicit trade skyrocketed. The numbers simply don’t align with the industry’s narrative.
The real driver of illicit trade in South Africa is organised criminality, not excessive taxation. The Treasury has acknowledged as much in its engagements with parliament. While there is substantial cross-border smuggling, the biggest driver of illicit trade is underdeclaring of production by domestic manufacturers.
While we consider the excise tax increases announced in the 2026 budget too modest, the Treasury deserves credit for standing firm against the tobacco industry’s relentless lobbying. For years the industry has weaponised the issue of illicit trade to pressure the Treasury into lowering the real excise tax on tobacco through an excise tax “freeze”.
The real driver of illicit trade in South Africa is organised criminality, not excessive taxation. The Treasury has acknowledged as much in its engagements with parliament. While there is substantial cross-border smuggling, the biggest driver of illicit trade is underdeclaring of production by domestic manufacturers.
This pressure intensified ahead of the 2026 budget, particularly after British American Tobacco announced in January that it would close its Heidelberg factory, citing the growing illicit market. By raising the excise tax in line with expected inflation, the Treasury has at least preserved its real value — a decision that deserves recognition.
It reflects sound reasoning about the true causes of the problem. In his budget speech finance minister Enoch Godongwana spoke more forcefully than usual about the “scourge of illicit trade”. He pointed to the “sophisticated and organised nature” of these operations, calling for “an intensified effort to curb this trade, secure prosecutions and dismantle its supply chains”. Strong words — and justifiably so.
Illicit market has grown despite crackdowns
But strong words are not enough. At least since 2014 successive finance ministers have promised tougher enforcement. Seizures have been announced. Special units have been established. Assessments have been raised. Joint operations have been launched. Yet the illicit market has grown, not shrunk.
Excise tax collections from cigarettes remain well below pre-pandemic levels and the fiscus continues to lose billions, while criminal networks flourish. South Africa, despite being part of the negotiations for the Protocol to Eliminate Illicit Trade in Tobacco Products, has failed to ratify it or implement many of its provisions. In 2019, Sars issued a call for tenders for a track & trace system — one of the protocol’s core pillars.
The system would allow authorities (and even the public) to trace the origin of every cigarette pack, ensuring that excise taxes are paid. Yet the call for tenders was withdrawn in August 2020, and no progress has been made since. Subsequent attempts by Sars to install CCTV cameras in cigarette factories and warehouses were blocked in court after legal challenges from the Fair-trade Independent Tobacco Association (Fita), the body representing non-multinational local manufacturers — a group many suspect to be central to the illicit trade problem.
Today, cigarettes in South Africa bear no physical features like tax stamps, to indicate whether the excise tax has been paid or not. This makes compliance monitoring virtually impossible. In his most recent budget speech Godongwana promised that Sars would “intensify its efforts”, continuing joint operations with the Border Management Agency, police and the defence force to curb the illicit trade.
We have heard this tough talk before, in previous budget speeches and in other forums. What South Africa needs now is visible change: a declining illicit share, rising excise collections, successful prosecutions and, ultimately, a restoration of the rule of law in the tobacco market.
The lesson from 1994–2009 is clear: when excise policy is bold and enforcement is credible, South Africa benefits fiscally and socially. The choice facing government today is not between higher excise taxes and fighting illicit trade. It’s about whether to tolerate the criminal capture of a market worth billions, or decisively reclaim it.
Godongwana has acknowledged the threat. The tools are available, and the policy blueprint exists in the form of the Protocol to Eliminate Illicit Trade in Tobacco Products. What remains is implementation. South Africa has heard over a decade of promises. It is time for delivery.
• Filby is a research officer, and Van Walbeek director, at the research unit on the economics of excisable products at the University of Cape Town.
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