British American Tobacco SA says cigarette sales now in hands of illicit traders

  • BATSA says the results of a new study show that the illicit tobacco market has ballooned during lockdown. 
  • The group says illicit traders have cornered the market since the ban was instituted will not become compliant once the ban is lifted.
  • The state has argued that the ban is necessary for health reasons, as smoking causes more severe cases of Covid-19. 

South Africa's largest tobacco manufacturer, British American Tobacco SA (BATSA), says a new study on the impact of smoking and cigarette prices during the nationwide lockdown supports its view that the illicit tobacco market has ballooned as smokers continue to search for a fix.

A study conducted by the Research Unit on the Economics of Excisable Products (REEP), an independent research unit based at the University of Cape Town, found that over 90% of smokers who didn’t chose to quit had been able to buy illicit cigarettes during the lockdown.

According to BATSA, this means that "millions of illegal transactions are taking place across the country every day," for which the state receives no tax revenues. 

And while the ban did incentivize some smokers to quit during Level 5 on the lockdown, this had now slowed to a "trickle", according to the research, which was based on an online survey of 23 000 respondents conducted between 4 and 19 June 2020.

The sale of cigarettes and tobacco products has been banned since March 26, with the state arguing research supports its view that smoking leads to more severe cases Covid-19. Since the ban, the tobacco company has seen its shares gain a marginal 3.2%, compared to an almost 15% climb in the JSE All Share Index.

South African billionaire, Johann Rupert, chairs investment fund, Reinet, owns a stake in British American Tobacco.

The government defeated a court challenge to unban cigarettes from the Fair Trade Independent Tobacco Association in June, with the High Court ruling it fell within the powers of the state under the Disaster Management Act to ban the sale of tobacco.    

BATSA has also launched a legal challenge against the ban, separate from the FITA case. This is expected to be heard in early August

According to the study, the average price of cigarettes has increased by nearly 250% compared to pre-lockdown levels, with the average selling price of a pack of cigarettes increasing to R114.

“These illicit suppliers are not, suddenly, going to become compliant and start obeying the law and paying taxes when the ban is eventually, lifted.  They evaded taxes prior to the lockdown, they’ve made billions tax-free during the ban and they will evade taxes after the ban,” said BATSA’s Head of External Affairs Johnny Moloto in a statement. 

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