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Business Leadership South Africa (BLSA) has called on the South African Revenue Service (SARS) to "immediately reinstate" specialised units to clamp down on illegal cigarette sales, which are costing the economy billions in lost revenue each year.
In a statement issued on Thursday, BLSA responded to a report issued by the Tobacco Institute of South Africa, which said illicit cigarette sales were costing South Africa some R7bn each year.
'Man-made gap'
"This is a clear evidence that the R50 billion revenue shortfall was not the result of only the economic slowdown as has been suggested, but a man-made gap created by lack of enforcement resulting from the corrupt decision to stop investigations and inspections of, amongst others, cigarette factories – a statement made in testimony given at the Nugent commission this past week," said BLSA CEO Bonang Mohale.
At the launch of the report on illicit tobacco trade earlier in the day, Tisa chairman Francois van der Merwe said at least 8 billion cigarettes were illicit, accounting for at least 14% of the government's estimated revenue shortfall of R50bn.
Illegal cigarettes, costing as little as R5 per pack, were available in over 100 000 shops across the country, added the report, which was conducted by global market and opinion research specialist IPSOS.
The study also said over a third of cigarettes in "non-organised" shops, which account for almost 80% of tobacco sales, were being sold for well below the government minimum of R17.85 in tax payable.
Follow through
"BLSA urges finance minister Nhlanhla Nene to follow through with his announcement earlier this week to reinstate the divisions that were collapsed under Mr Moyane’s watch that include the inspections and investigations of cigarette factories," BLSA said.
"This year, for the first time, in our 24-year democracy, government raised the level of Value Added Tax as part of a desperate move to plug the revenue shortfall. The IPSOS study has shown that the revenue shortfall was worsened by illicit cigarette trade," Mohale added.
"Minimally, Minister Nene should reinstate these inspections as part of measures to restore tax morality and confidence in SARS – once a reputable world class public institution. The disciplinary inquiry against Mr Moyane should also proceed without further delay. SARS is too important an institution to be leaderless for an indefinite period," said Mohale.
BLSA was concerned about the impact of illicit trade on existing jobs, investment and job creation potential in the agro processing value chain, it said, where between 8 000 and 10 000 jobs are "under threat, and most from small farmers".
BLSA also called on fellow members to call out businesses in the private and public sector "those within their ranks who are complicit in tax immorality" and report illegal activity.
Incentive to smoke?
In late May, research released by the University of Cape Town argued that the decline in excise tax revenue indicated an increase in illicit cigarette trade – not a decrease in smoking.
Rather, the university argued, cheaper cigarettes might provide an incentive to smoke.
"Cigarettes acquired through the illegal market are cheaper, making it easier for people to start smoking, consume more, as well as not quit the habit as easily as they may have," the university's Economics of Tobacco Control Project (ETCP) said in a statement.
ETCP head Professor Corné van Walbeek, who tracks tax data to monitor cigarette sales and consumption in South Africa, said there had been a "large increase" in illicit trade which could not be explained by smoking patterns.
According to the Budget Review, released in February 2018, excise tax revenue from tobacco products decreased by approximately 10% between the financial years 2016/17 and 2017/18, despite an 8% increase in the excise tax per pack of cigarettes in that period.
Overall, between 2016 and 2018, there was a 20% decrease in the number of tax-declared cigarettes.
SARS is ramping up efforts to implement compliance programmes aimed at curbing the illegal tobacco businesses and has recently announced plans to reopen dedicated investigative teams to probe the illicit trade.
In May, the Hawks told the Standing Committee on Finance that they were investigating 394 cases of illicit tobacco trade for the 2017/18 year.
Meanwhile, the Nugent Commission of Inquiry was appointed by President Cyril Ramaphosa to investigate governance and tax administration concerns at SARS.
It recently began hearings.
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