SARS losing billions in tax as cheap cigarettes flood market

Cigarette manufacturer Gold Leaf Tobacco Company (GLTC) accounts for 75.1% of sales below the minimum tax rate and what the National Tobacco Market Study released on Thursday suspects to be illicit trade. 

One of the brands of the Johannesburg-based company is now the second biggest selling in the country.

According to the report, the South African Revenue Service (SARS) is losing over R7bn this year to illicit tobacco trade.

“Cigarettes selling at prices below the minimum tax owed to SARS, which is R17.85 per pack, were found in almost 3 out of 4 informal shops,” said Francois van der Merwe, Chairperson of the Tobacco Institute of Southern Africa (TISA).

He said it was impossible for traders to sell at such low rates, unless there was no tax paid for the product.

The study conducted by Ipsos revealed that illicit traders could have made over R15bn  in the last three years.

Illegal cigarettes cost as little as R5 per pack, and sold in more than 100 000 shops across the county, according to the report.

One of GLTC's cigarette brands, RG, is the second biggest selling brand in the country after Peter Stuyvesant, which is owned by British American Tobacco.

Other popular GLTC brands are Savannah, Sharp, Chicago and Sahawi. The GLTC manufacturing plant is officially licenced by SARS.

Van der Merwe stated that the flow of illegal trade had mushroomed since the disbanding of a unit by SARS investigating illicit trade in tobacco under the suspended commissioner Tom Moyane.

“Trouble started in 2014 when Project Honeybadger was terminated, creating an opportunity for operators to flourish,” he said.

The report stated that the legal tobacco volumes dropped 15% since 2015, as a result of the demise of the SARS investigating unit.

Van der Merwe said companies selling “ultra-cheap” brands had developed highly efficient distribution systems.

The tobacco institute TISA recommended a ban on cigarette sales below the tax level, and called for stricter monitoring in manufacturing plants.

The tobacco industry has a market value of R28.8bn and supports 8 000 to 10 000 jobs in the agricultural sector and more than 179 000 wholesalers and retailers.

SARS is ramping up efforts to implement compliance programmes aimed at curbing the illegal tobacco businesses and has recently announced plans to reopen dedicated investigative teams to probe the illicit trade.

In May, the Hawks told the Standing Committee on Finance that they were investigating 394 cases of illicit tobacco trade for the 2017/18 year.

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