Ban on cigarette, liquor sales costing R1.5bn in lost tax revenue – Kieswetter

SA Revenue Service Commissioner Edward Kieswetter (Photo by Gallo Images/Business Day/Freddy Mavunda)
SA Revenue Service Commissioner Edward Kieswetter (Photo by Gallo Images/Business Day/Freddy Mavunda)

The South African Revenue Services is not quite on top of the illicit tobacco trade as it would like to be, especially given the current Covid-19 arrangement, Commissioner Edward Kieswetter has said.

The commissioner of the revenue service on Thursday was speaking during a virtual meeting with Parliament's finance, appropriations and public accounts committees about the fiscal implications of Covid-19.

Government instituted a lockdown on 26 March in order to slow the spread of the virus. Among the restrictions included a ban on sales of liquor and tobacco products. Commenting on the impact of this particular restriction, Kieswetter said two concerns were raised – namely the loss of tax revenue and illicit tobacco trade.

"Naturally, with regulations not permitting the sale of alcohol or tobacco, this will have a significant revenue impact," said Kieswetter.

For the month to date, under-recoveries of excise duties from beer come to R664 million, for wine this is R300 million, for spirits it is R400 million and for cigarettes just under R300 million.

Overall loss of revenue from VAT, excise duties, import duties and Pay As You Earn tax, amounts to over R30 billion for the past month.

'It will become worse'

"It will become worse once tax relief measures kick in," Kieswetter said.

SARS will be allowing deferrals of several tax payments to cushion the blow of Covid-19 on households and businesses. This is part of a set of tax relief measures authorised agreed to by SARS and Treasury last week.

"Another concern is the illicit sale of cigarettes. We cannot claim as a country that we are on top of it. At a time like this when the legal sale is not permitted, it encourages the trade of these products in the illicit economy," Kieswetter said.

SARS had scrapped an initial tender process to find a service provider to assist in its efforts to clamp down on illicit  tobacco trade to ensure no revenue would be lost. At a briefing on SARS preliminary financial results earlier this year, Kieswetter said the process would have to "start from scratch", Fin24 previously reported.

Government initially intended for sales of cigarettes to be permitted from Friday, 1 May, but backtracked on this decision after receiving over 2 000 submissions from the public opposing the sale of tobacco products, Minister of Cooperative Governance and Traditional Affairs Nkosazana Dlamini-Zuma said at a briefing on Wednesday night.

Dlamini-Zuma said that the public raised concerns over the health risk – of sharing cigarettes and other tobacco products, as well as that it had compromised lungs.

Not vindictive

The Black Business Council was among the parties which opposed the sale of cigarettes, its president Sandile Zungu told Fin24 earlier. The BBC was particularly concerned with the risk of transmission through smoking, particularly in poorer communities where the exchange of loose cigarettes is common.

The BBC believes the lifting the ban would be contrary to the prescripts of the World Health Organisation.

"This was not done with vindictiveness. We have had to shut down the whole economy to protect those who are most vulnerable among us," he said. It did not make sense to take such extreme measures to shut down the economy and then allow those who are vulnerable to continue compromising their health by allowing smoking, he added.

However, when the ban was first instituted, British American Tobacco South Africa warned that it would only encourage smokers to buy products from underground traders.

The Fair Trade Independent Tobacco Association, meanwhile, has plans to launch an urgent application to challenge government's decision, News24 reported.

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