Illicit tobacco makes up half of SA’s market; tax shortfall now likely

South Africa will very probably fall wanting Treasury price range estimates for duties from cigarettes and different tobacco merchandise within the yr by 2022. That is in response to British American Tobacco, who says the prolonged gross sales ban on tobacco merchandise compelled people who smoke to hunt merchandise elsewhere. Presently, illicit tobacco makes up greater than half of the nation’s market. Controversially, authorities banned the sale of tobacco merchandise final yr in an try to curb the unfold of Covid-19. The ban seemingly didn’t work, with Bloomberg reporting that “people who smoke rapidly discovered methods to supply the merchandise, fuelling the black market.” – Jarryd Neves

South Africa tobacco tax shortfall probably after gross sales an, BAT says

By Prinesha Naidoo

(Bloomberg) – British American Tobacco Plc mentioned unlawful cigarettes make up greater than half the South African market after a prolonged ban on the sale of tobacco merchandise compelled people who smoke to look elsewhere. 

The illicit business is sustaining its majority grip on the sector greater than a yr after the five-month prohibition was lifted, in contrast with a 37% share in 2019, the corporate’s regional unit mentioned in a presentation to South African lawmakers on Tuesday. Contraband gross sales will deprive the federal government of R19.1 billion ($1.three billion) in unpaid duties within the present fiscal yr, it mentioned.

South Africa will in all probability fall wanting Nationwide Treasury price range estimates for duties from cigarettes and associated merchandise within the yr by March 2022, BAT mentioned.

South Africa outlawed the sale of tobacco ostensibly to assist curb the unfold of the coronavirus, one of many authorities’s extra controversial measures to regulate the pandemic. But people who smoke rapidly discovered methods to supply the merchandise, fuelling the black market.  

A College of Cape City research discovered that 90% of people who smoke have been capable of buy cigarettes throughout lockdown – sometimes at elevated costs. BAT and and Japan Tobacco Inc. took authorized motion, with a courtroom ruling that the ban was unconstitutional. The federal government has since mentioned it would enchantment.

Even earlier than the crackdown on authorized gross sales, South Africa was one of many world’s largest markets for illicit cigarettes, in response to a 2018 report revealed by the nation’s producer-funded Tobacco Institute. It may take years to reverse the affect of the legal networks that sprung up and benefited from the ban, Edward Kieswetter, the commissioner of the nation’s tax company, mentioned final yr.

The federal government additionally raised excise duties on cigarette and tobacco merchandise by 8% in late February, triggering a 9% improve in authorized retail costs however a reduce on the illicit market, BAT mentioned. The levy means the excise incidence on the preferred value class of cigarettes is now at 45%, in contrast with the Nationwide Treasury’s focused incidence of 40%, Johnny Moloto, the overall supervisor of BAT South Africa, mentioned in a separate written submission to lawmakers.

“It’s obvious that in setting the excise price, the Honourable Minister of Finance didn’t absolutely consider or in any respect, the affect of the unprecedented 5 months ban on cigarette buying and selling within the prior yr, which extensively destabilised South Africa’s cigarette business,” he mentioned.

(Updates with earlier market share in second paragraph)

–With help from Paul Vecchiatto.

© 2021 Bloomberg L.P.

Learn extra:

Authorized tobacco retailers say gross sales are nonetheless sluggish publish cigarette ban – Ivo Vegter
LISTEN! Edward Zuma accomplice Yusuf Kajee: how SA tobacco commerce actually works #2020 in assessment
Unlawful tobacco commerce courtroom ruling: Taxpayers ‘robbed’ of R5bn

(Visited 493 occasions, 493 visits as we speak)

Leave a Comment