Tobacco tax hike announcement spawned illicit trade - survey

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  • The announcement of an 8% increase in excise duties - affecting tobacco products - saw the domestic market flooded with untaxed cigarettes.
  • A survey commissioned by British American Tobacco SA shows that nearly three-quarters of retail outlets in Gauteng, the Western Cape, and the Free State are "openly" selling illegal cigarettes.
  • These cigarettes are selling for as little as R8 for a pack of 20 sticks - compared to the legal minimum collectable tax of R26.61.

The domestic market was flooded with illegal cigarettes following the announcement of an 8% hike in excise duties which affects tobacco products, a survey shows.

British American Tobacco SA (BATSA) commissioned research firm Ipsos to conduct a survey on the cheapest purchase prices in the tobacco cigarette market. Using a "mystery shopper" approach, Ipsos had a shopper pose as an actual consumer to find out which cigarette brands were being sold at cheap prices at a sample of 4 000 stores (including informal traders) in Gauteng, the Free State and the Western Cape.

The second wave of research - based on a survey conducted in March - was released on Monday.

The survey found that almost three quarters (74%) of retail outlets in the three provinces are "openly" selling illegal cigarettes. "This is an increase of more than 7% on the last survey conducted before the excise increase in February," a statement from BATSA read.

Province-specific findings show:

In Gauteng, about 70% of outlets sold cigarette packs at R20 or less.

In the Free State, about 81% of outlets sold cigarette packs below the minimum collectable tax price level.

In the Western Cape, about 71% of stores were selling products below R20.

According to the research paper, the minimum collectable tax on a pack of 20 sticks should be R21.61. But following the tax hike announcement, the availability of R20 packs increased, the sale of these cigarettes is prevalent in both formal and informal retail outlets.

"[The] lowest pack price recorded in the second study was R8.00 in wholesale for a product called W33D manufactured by an unknown manufacturer in Gauteng."

"Remington Gold by Gold Leaf Tobacco Zimbabwe had the lowest price in the Free State sample retailing for R10 a pack, while Golden Flake by Afroberg Tobacco at R12 a pack was the cheapest in the Western Cape," the report read.

Afroberg is a member of the Fair-Trade Independent Tobacco Association (FITA). The chairperson of FITA, Sinenhlanhla Mguni, noted the report and called it the report by IPSOS a "Trojan horse" doing the bidding for BATSA, given the attacks on its commercial competitors.

"These so-called independent reports are now also being used as ammunition by Big Tobacco for anti-competitive purposes to smear the names and brands of independent local cigarette manufacturers  as a way to strong-arm retailers into removing the products of smaller independent manufacturers off their shelves," Mguni said.

The report shows that the lowest prices for cartons were at R60 in the Western Cape - this is R6 per pack. In Gauteng and the Free State, the cheapest carton prices were going for R70 and R75, respectively.

'National emergency'

BATSA's general manager Johnny Moloto said the findings indicate a "national emergency" and reiterated previous calls for a commission of inquiry into the tobacco market.

"We thought that the levels of criminality and tax evasion that cost every single South African huge sums of money could not get any worse. We were wrong," Moloto said.

"This study shows that, now, three out of every four retail outlets in Gauteng, [the] Western Cape and [the] Free State are openly selling illegal products that are not remitting taxes.

"The facilitation of this scale of robbery of billions and billions of rand from the people of South Africa as we continue to struggle with pandemic hardships is totally unacceptable," Moloto said.

In the short term, government should make sure all tobacco companies comply with the SARS production counter rules and introduce a minimum retail sales price of R28 for a pack of 20 sticks. Additionally, the government should ratify a World Health Organization Illicit Trade protocol to fight illicit trade and introduce a track-and-trace system for cigarettes.

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