A subject of furious debate during the lockdown is the ban on tobacco products. In a webinar held by PSG, Jacques Pauw, author of the gripping The President’s Keepers, told viewers the lockdown was only part of the reason the illegal cigarette trade in South Africa is thriving.
This was the first webinar in PSG’s Think Big webinar series, and was hosted by Ronald King, PSG’s head of public policy and regulatory affairs.
“The story heats up in 1997, when government increased the tax on cigarettes from 20% of the sale price to 50%,” Pauw told viewers. “This suddenly made it very expensive to smoke and boosted the underground world of illegal cigarettes.”
After all, without the excise, you can sell your product below market price and still make a huge profit. Currently a pack of 20s costs R36 in a large retail outlet, of which the government gets R18. Even though it costs under R2 to manufacture a pack of smokes.
The lockdown, however, has made it even more profitable to trade in illegal tobacco products. Supply and demand have allowed purveyors of these perilous puffs to charge premium prices, well beyond what a legal pack of 20s would cost, if you could buy one.
At the same time, government could by now have lost up to R4.5 billion in revenue as a result of the tobacco ban, even as it has announced it will have to borrow from the IMF, the World Bank and the New Bank to fund our COVID expenses and help keep the economy barely afloat.
Pauw said the criminal tobacco networks are flourishing because they haven’t been brought to book, and not just during lockdown. The last time SARS tried was 2012, when it launched operation Honeybadger to investigate and prosecute illegal tobacco. Driven by Johann van Loggerenberg, then head of the SARS Investigate Unit, the operation raided tobacco companies, withdrew licenses, and closed down manufacturers.
“By 2014, fifteen companies were facing criminal prosecution and tobacco smuggling had dropped off significantly. In 2012 tax evasion of tobacco products was worth R3bn a year. Thanks to Honeybadger, contraband tobacco products dropped from 26% of the total market for tobacco products in 2013 to only 17% in 2014.”
Sadly, the figure is back up to 35-40% today. What happened? Watch the video below for the rest of the story.
