- The SA Tobacco Organisation's proposed R22 for a pack of 20 cigarettes will not cover taxes, according to British American Tobacco South Africa (BATSA).
- BATSA has issued a statement hitting out at the proposal - citing a study that shows it is not economically viable to sell cigarettes below R26.55 per pack.
- BATSA wants government to enforce a minimum retail price of R28 for a pack of 20 cigarettes in an effort to clamp down on illicit tobacco trade.
British American Tobacco South Africa (BATSA) has hit back at the South African Tobacco Organisation's (SATO) proposed minimum price of R22 for a pack of cigarettes, saying it will not cover taxes and is a "flimsy cloak for tax evasion".
But a spokesperson for SATO says the proposed price is not a set price for the market, and will still ensure compliance with tax collections.
BATSA earlier this month raised concerns on the findings of a survey conducted by market research company Ipsos, which showed that about 41% of sampled retailers were selling a pack of 20 cigarettes below the survey's minimum taxable amount - including excise duties and VAT - of R21.60.
The survey also detected an outlier – a carton of ten packets of cigarettes sold for R60, which translated to R6 per packet.
In response, BATSA called for a pack of cigarettes to retail at a minimum of R28, in order for authorities to clamp down on illicit trade.
Manufacturer Gold Leaf Tobacco Corporation (GLTC) - whose brands were found to be among the cheapest, according to the survey - subsequently denied claims of illicit trading. According to a statement issued by SATO, of which Gold Leaf is a member, the manufacturer contributes R200 million per month to the South African economy through the payment of taxes.
In the statement, SATO proposed a minimum retail price of R22 for a pack of 20 cigarettes. But BATSA, in a separate statement this week, said that R22 is "ludicrously low".
"GLTC's proposed minimum price of R22 is a laughable attempt to portray themselves as tax compliant and exposes how they seem to treat the tax laws with utter contempt," said Johnny Moloto, general manager of BATSA.
"As the collectible tax on a R22.00 pack is at least R21.65, GLTC are effectively saying they are able to cover the costs of raw materials, production, distribution and retail margins for just 35 cents – and still make a profit for themselves.
"" That is not a business strategy, it's just a flimsy cloak for tax evasion."
Not a set price
In response to questions from Fin24, SATO chairperson Raees Saint said the minimum price proposed is "merely a minimum price" and not a "set price".
"… Manufacturers should not be bullied into selling at high prices determined by British American Tobacco.
"The purpose of minimum price is ensure compliance with payment of the minimum collectable tax, manufacturers need to be competitively priced and the industry must be careful not to fall victim to the abuse of dominance practices by BAT's suggested R28," said Saint.
Fin24 has also requested comment from Gold Leaf Tobacco. This article will be updated if a response is received.
This is not the first-time claims have been lodged against Gold Leaf for illicit trade.
Earlier this year research undertaken by Tax Justice SA (TJSA) found that the illicit cigarette market was dominated by brands belonging to Gold Leaf and the Fair-trade Independent Tobacco Association (FITA), Fin24 previously reported.
The report showed retailers were openly selling cigarettes below the minimum collectible tax amount of R20.01. TJSA considers cigarettes sold below R25 per back, to be illicit - as the price can’t cover the cost of manufacture, distribution and taxes.
FITA questioned the independence of the research and SATO said it supported the fight against illicit trade. Last year FITA and Gold Leaf ended their relationship - no reasons were given.
BATSA also cited a study commissioned by the South Africa Tobacco Transformation Alliance (SATTA), which estimated that cigarettes priced below R26.55 per pack was not economically viable.
"Tobacco excise duties for a pack of 20 cigarettes is R18.78. When all relevant costs are added, an indicative manufacturing price - which includes the costs of raw materials, production costs, manufacturing margin, distribution costs as well as retail margin - would be R30.95; this includes VAT of R4.04 or 15% from R30.95," BATSA's statement read.
"This analysis shows that there's no way cigarettes can be sold to consumers below R26.55 as part of a sustainable business strategy, anything cheaper indicates that due taxes are not being paid," said Moloto.