South Africa has multi-million rand smoking problem – and SARS is taking action

Despite the efforts of authorities, illicit cigarettes in their millions are filtering into South Africa, sidestepping tax and customs levies.

Edward Kieswetter, the commissioner of the South African Revenue Service (SARS), said: “The country is battling the scourge of illicit cigarettes smuggled from a neighbouring country, with a view to not only displace legitimate manufacturers but to also deprive fiscus of all taxes due.”

Just this month, there have been two busts by officials, SARS said.

On 2 May, SARS, in collaboration with the South African Police Service (SAPS), intercepted a truck carrying 100 master cases of illicit cigarettes valued at a tax prejudice of R20 million.

They were imported through the Beit Bridge, on the border of Zimbabwe, and were falsely declared as tea leaves. The truck transporting the illicit cigarettes was subsequently impounded.

On 20 May, SARS’ Customs Division intercepted a truck carrying 440 master boxes of Remington Gold cigarettes, with an estimated value of R9 million, which were falsely declared as Cotton Oil Cake.

Kieswetter said that SARS is continuing to act consistent with its strategic objective of making it hard and costly for taxpayers and traders who are wilfully defrauding the state will be dealt with forcefully and mercilessly.

SARS has been on a crackdown on illegal cigarettes for a while, especially following the pandemic when cigarettes were banned under the country’s strict lockdown laws.

Focusing on the illicit cigarette industry has been an initiative of the tax authority in its overall attempt to curtail non-compliance.

In August 2022, Johhny Moloto, the general manager of British American Tobacco South Africa (BATSA), said that almost 70% of all cigarettes consumed in South Africa now belong to illicit brands.

Smoking, including e-cigarettes, has become a sector of great financial scrutiny, with new regulations in the pipeline to provide more oversight into the industry and its pricing.

For example, from 1 June 2023, nicotine substitute solutions will be included in the tax net with a flat excise duty rate of R2.90/ml.

This has, however, faced pushback from industry figureheads. According to Asanda Gcoyi, the CEO of Vapour Products Association SA, this could potentially damage the emerging and highly popular industry y by leading to an estimated 22% drop in sales.

British American Tobacco has echoed this sentiment, noting that it could possibly see the price of vape products more than double – pushing consumers to the illicit tobacco market.

As reported by ENCA, the food sector union, the Fair-Trade Independant Tobacco Association, shares some contention over the new regulations.

It said that new rules which compel any warehouse to be placed under constant surveillance by the taxman are an invitation to privacy, are arbitrary and irrational.

SARS, however, argues that the regulation aims to stub out the illicit trade of cigarettes and ensure manufacturers pay all legally prescribed taxes.

Source: BusinessTech