South Africa losing war against tobacco use as illicit brand floods market

With South Africa’s restrictive policies in the Tobacco Control Amendment Act, the government expected a decline in the demand for cigarettes, due to its significant presence compared to other tobacco products. Unfortunately, the Act has not entirely been successful, as there is still an influx of cigarette in the country to the extent that its top cigarette company, Gold Leaf Tobacco’s RG brand is selling below the legal tobacco threshold tax.

A study by research firm, Ipsos, discovered that cigarette makers selling below the minimum collectible tax of R17.85 ($1.31) per pack. With at least 8 billion sticks illicit, the South African Revenue Service (SARS) will lose more than R7 billion this year. Since 2010, the government has lost well over R27 billion ($2 billion) in unpaid taxes due to illegal cigarettes.

Illegal cigarette trade in South Africa spiked between 2014 and 2017 after a probe into the underground industry was dropped by SARS whose suspended boss, Tom Moyane, is the main focus of an ongoing SARS inquiry, following allegations of widespread corruption at the tax agency under his watch.

Having overtaken all legal brands, the RG brand became South Africa’s top-selling brand, selling for an average price of R10 ($0.73), indicating it was evading the R17.85 ($1.30) tax it was supposed to remit to the government for each pack of cigarette. Gold Leaf’s cigarettes comprise a staggering 75 percent of the entire illicit cigarette trade.

Revenues lost to illicit tobacco would not be the only worry for South Africa, tobacco kills more than 7 million people each year, according to the World Health Organisation (WHO). Tobacco users who die prematurely deprive their families of income, raise the cost of health care and hinder economic development. Hence, tobacco taxes are seen as the most cost-effective way to reduce tobacco use, especially among young and poor people. A tax increase that increases tobacco prices by 10 percent decreases tobacco consumption by about 4 percent in high-income countries and about 5 percent in low- and middle-income countries. However, this effort has been made futile by illicit tobacco.

According to a report by the American Cancer Society (ACS), more than 55,000 children (10-14 years old) and over 6.3 million adults (15 years old and above) continue to use tobacco each day in South Africa. Smoking in South Africa has also been rated the second highest health concern after HIV/AIDS.

South Africa needs to do more in monitoring production and distribution of tobacco products, as illicit cigarettes sold in the country are manufactured locally in factories licensed by its revenue service.

Meanwhile Moyane is currently fighting his dismissal as SARS boss. The former commissioner who was sacked based on the recommendations of the interim report of Nugent Commission of Inquiry  into the South African Revenue Service, wants the court to declare his sack unfair and unconstitutional.