Soaring illicit tobacco trade costs SA billions

30 November 2018

Agri SA is concerned by the intensification of illicit tobacco trade as shown by the follow-up Ipsos retail audit. The tax evasion has escalated to such an extent that excise duty on nearly 1 in four cigarettes are not declared.

In the three months since the first audit, tobacco products below the minimum tax due have soared from 33.1% in June to 41.8% in the informal retail sector. This means that South African Revenue Service is now losing at least R8 billion annually; up from R7 billion reported in the previous wave of the Ipsos study.

“The illicit cigarette trade is a direct threat to the more than 350 local tobacco farms,” said Pietman Roos, Agri SA Head of Corporate Affairs and Communication. “Even though the illicit trade makes use of imported tobacco leaf, it indirectly causes a decrease in demand for tobacco leaf from local producers for the legal market.”

Tobacco farms in South Africa – of which 155 are black-owned small-holder farms - employ 1 000 people and support 30 000 dependents in deep rural areas, in Limpopo, North West, Mpumalanga and Eastern Cape. These producers are fully dependent on the legal tobacco industry in South Africa to purchase their produce.

“This new evidence of the intensification is incredibly worrying and warrants an immediate government response,” said Roos. “The solution to illicit cigarette trade is simple; there has to be a clamp-down on illegal cigarette factories by immediately despatching full time enforcement agents to these sites.”

Agri SA will continue to support the legal tobacco industry, as a major job creator in several regions of South Africa, against this threat. Agri SA asks that government deals urgently with this matter as thousands of South African livelihoods are at risk.

Issued by Thea Liebenberg, Media Liaison Officer, Agri SA, 30 November 2018