RACKETEERING:  The government has lost R100 billion in tax revenue to illicit cigarette market since 2010…

By WSAM Reporter

The South African Government lost R17,6 billion in tax revenue in 2022 through the country’s rampant illegal cigarette trade.

This shock is contained in a research by the University of Cape Town (UCT) academics, Dr Nicole Vellios and Professor Cornévan Walbeek, who this week revealed that the government has been losing billions of rand as the result of illegal cigarettes since 2002.

Vellios, based at UCT’s Research Unit on the Economics of Excisable Products (REEP),  said the government lost R17,6 billion in 2022 in excise and VAT revenue, which would have added an additional 1% (R176 million) to the total revenue, he added.

“If we look at a longer period from 2002 to 2022, the total lost excise and VAT revenue is R119 billion,” said Vellios. “The majority of the lost revenue occurred from 2010 to 2022, when R110 billion in excise and VAT revenue was lost. This is because the illegal market started to grow in 2010. We estimated that the illicit cigarette market comprised 5% of the market in 2009, peaked at 60% in 2021, and decreased marginally to 58% in 2022.”

The researchers’ estimates of illicit trade from 2002 to 2022, published on 15 March 2024 in BMJ Open, are based on a gap analysis. They estimated the number of illicit cigarettes by calculating the difference between the number of self-reported cigarettes and legal cigarettes purchased.

To calculate the excise and VAT revenue that the government lost through illicit trade, they took into account that some people would have quit or reduced their consumption if cigarette prices had been higher (that is, if tax was paid).

Van Walbeek, who has been involved in tobacco control research for more than two decades, noted that, in the context of a market with such a large illicit component, an increase in the excise tax became much less potent as a tobacco control tool.

 “An increase in the excise tax will have an impact only on the price of legal cigarettes, but it will have no impact on the price of illicit cigarettes. A huge illicit market is problematic because it makes it easy for smokers to switch to the illicit market, and, because cigarettes are cheap, more young people are likely to try smoking. It is, therefore, critical to reduce the availability of illicit cigarettes,” Walbeek said.

Vellios commented: “We are often told that people might not know if the pack they buy is illegal or not. There is a very simple way to know – by considering the price. Each packet of 20 cigarettes now carries an excise tax of R21.77. Add the manufacturing costs, transport costs, wholesale and retail mark-ups, and VAT, and the minimum price at which a legal pack of cigarettes can be sold is around R32 per pack.”

Despite many appeals by academics and civil society organisations, South Africa has not ratified the Protocol to Eliminate Illicit Trade in Tobacco Products, van Walbeek said.

The protocol is an international treaty that aims to eliminate all forms of illicit trade in tobacco products. Countries that ratify the protocol commit themselves to implement, among other things, licensing requirements for all producers in the tobacco supply chain and a track-and-trace system to monitor the flow of tobacco products.

If SARS did not move to secure the supply chain from the point of production to the point of sale, South Africa would continue to lose valuable revenue, warned the researchers.

The research was funded by the Bill & Melinda Gates Foundation through the African Capacity Building Foundation.

Meanwhile, reacting to the research report, Democratic Alliance said the situation in 2022 was further exacerbated by the government’s draconian restrictions during the COVID-19 lockdowns, “which, far from controlling the issue, actually provided the illegal tobacco industry with unprecedented opportunities to expand”.

Dr Dion George, DA’s shadow minister of finance, cited Tax Justice South Africa’s analysis which revealed that ,in 2022 alone, the fallout from government’s mismanagement resulted in a tax revenue shortfall that exceeded R20 billion.

“This decline is starkly illustrated by the illicit tobacco trades’ market growth which constituted a mere 5% of the market in 2006. This surged to 60% in 2021 in the wake of the lockdown’s cigarette bans. Tax Justice estimating a possible increase to between 70% and 80% in recent years,” George said.

MIRROR

Briefs

DJ SBU RETURNs TO METROFM

Sibusiso Leope, affectionately known as “Dj Sbu” has been unveiled as the host of the new breakfast show on Radio 2000 after almost a decade away from wireless.

Dj Sbu’s appointment to the prime time slot promises that South Africa’s mornings will never be the same again, as he ushers in a new breakfast show together with the current team of Nathi Ndamase as co-presenter and Lelo Mzaca as the sports anchor.

Additionally, Radio 2000 also announced that award winning producer, artist, DJ and hitmaker Tlou Cleopas Monyepao aka ‘DJ Cleo’ will be joining the station.

The winner of several music awards – DJ Cleo with his wealth of musical knowledge will host a brand-new dance show ‘The Eskhaleni Party’ Fridays, 10pm to 12am.

The station bids farewell to radio legend Lewis Mpotseng Tshinaba aka Glen Lewis, whose journey with Radio 2000 comes to an end after hosting the breakfast show in the past year and afternoon drive show in the 2022-23 lineup. He will join Kaya FM next month. – Lehlohonolo Lehana

JULY 2021 UNREST KILLER JAILED

A 38-year-old man, Joel Pillay, has been sentenced by the Scottburgh High Court to 20 years’ imprisonment for killing an innocent man during the KwaZulu-Natal public unrest in July 2021.

National Prosecuting Authority spokesperson Natasha Ramkisson-Kara said Pillay was found guilty of murdering Lindani Mthethwa while he was walking down a street in Verulam.

“Pillay, who was driving a marked vehicle owned by a security company, turned his vehicle around and drove back towards Mthethwa. When he was alongside Mthethwa he lowered the window of his vehicle and shot him in the head. Mthethwa died on the scene,” said Ramkisson-Kara.

“In her statement, Mthethwa’s sister said Mthethwa was a responsible and hardworking person. She said that her family has been financially and emotionally affected. She added that the incident was traumatic, as she still has flashbacks. – WSAM Reporter

“In sentencing Pillay, the court deviated from the minimum sentence of life imprisonment, citing that he was a first offender when he committed the offence. Pillay was sentenced accordingly, and the court found him unfit to possess a firearm,” Ramkisson-Kara said. Some 350 people lost their lives during the July 2021 unrest that unfolded in Gauteng and KwaZulu-Natal. – SAnews.gov.za

SIU TO PROBE KZN FILM BODY

The Special Investigating Unit (SIU) is expected to launch a probe into allegations of serious maladministration, malpractice, corruption and fraud at the KwaZulu-Natal Film Commission (KZNFC).

President Cyril Ramaphosa has signed Proclamation R.4539 of 22 March 2024 authorising an investigation into “the procurement of and contracting for suitably qualified companies to partner and invest” with KZNFC in the development and operation of the KZN Studios including the commission’s investment in KZN Studios.

“The SIU will also investigate any unauthorised, irregular, or fruitless and wasteful expenditure incurred by KZNFC or the State. The scope of the investigation also covers any unlawful or improper conduct by officials or employees of KZNFC, the applicable suppliers or service providers or any other person or entity.

“The Proclamation covers allegations of unlawful and improper conduct that took place between 1 July 2017 and 22 March 2024, the date of the publication of the Proclamation or before 1 July 2017,” an SIU statement explained. – SAnews