Press release – FITA – for immediate release
We note and welcome the announcement by the South African Revenue Service (“SARS”) of a tender for the provision of a Production Management and a Track and Trace solution for cigarettes however we wish to caution SARS and government to steer away from the influence of Big Tobacco, the proverbial wolves in sheep clothing, when it comes to the selection of the preferred system.
It is accepted that the Illicit Trade Protocol requires a global track and trace system to reduce tobacco smuggling. Given big tobacco’s historical involvement in tobacco smuggling, it stipulates that track and trace ‘shall not be performed by or delegated to the tobacco industry’.
One must be cognisant of the fact that “Big Tobacco” has been a global serial repeat offender when it comes to illicit tobacco, and has spent millions on lobbying to block regulation and promote its own agenda. Growing & diverse sources of evidence indicate that Big Tobacco remains involved in tobacco smuggling and that its cigarettes account for around two-thirds of the illicit cigarette market. Big Tobacco therefore has a vested interest in controlling the track and trace system aimed to curtail this behaviour. To this end, Philip Morris International (PMI) adapted its pack marker system, Codentify, to meet track and trace requirements, licensed it for free to its three major competitors who then collectively promoted it to governments using front groups and third parties including companies claiming to be independent despite clear Big Tobacco links. PMI also sought to suggest Codentify was independent by selling some parts of its intellectual property on Codentify while retaining others, leaving a complex web of shared interests.
Here in Africa, British American Tobacco has used payments to obtain data suggesting its smaller competitor companies were evading taxes and secure influence with tax authorities. Regulatory capture has been enhanced by a public relations effort (the #TakeBackTheTax campaign) involving Big Tobacco funding for conferences, training, research, and international police and anti-corruption organisations. Collectively this has created public messaging and a powerful network of organisations supportive of Big Tobacco’s misleading position on the illicit trade.
It has further been concluded by Michael Eads, a former Executive for Customs Modernisation at SARS, and a customs and excise specialist who has conducted work on combating illicit tobacco for the European Commission, World Health Organisation and several governments around the world, https://tobaccocontrol.bmj.com/content/28/2/127?hootPostID=b6c75bf76bc7d3b2d9c6955de6bf04f7
together with Dr Hana Ross, a Principal Research Officer at the Economics of Tobacco Control Project at the University of Cape Town with 20 years of experience in conducting research on economics of tobacco control, and Savera Kalideen, an Executive Director of the National Council Against Smoking that one must be wary of the tobacco industry, and in particular Big Tobacco, painting itself as both the victim and saviour when it comes to the illicit tobacco trade. It has proven time and again by its behaviour and a litany of legal cases to simply not be credible when it comes to illicit trade in tobacco.
We have in the past aligned ourselves with the aforementioned sentiments of Eads, Ross and Kalideen, on the notion that we are of the firm view that If South Africa is serious about tackling the problem of illicit trade and getting this essential revenue back into government coffers, SARS has the ability to act under its existing powers and it does not need, and should not accept, assistance from the tobacco industry or its front groups.
Our position has always been that we, as an organisation, fully support any effort by the state and affected industry stakeholders to curb smuggling and the illicit trade in cigarettes. This is echoed by our signing of the joint statement which was released to the press and the public at large on 15 August 2018 indicating inter alia FITA’s commitment to, together with SARS and TISA, combat the aforementioned problem. This was done whilst maintaining our position that smuggling, although a problem, pales in comparison to the vast amounts of profits which leave our shores through aggressive tax avoidance schemes such as base erosion and profit shifting employed by some in our industry. This, in addition to other compliance risks along the value chain in the tobacco industry should, we feel, also be considered, and that compliance should never be limited to one aspect when the picture is far greater than just the illicit trade.
Our aforementioned view on the numerous forms of compliance risks is strengthened by a study released today, 30 April 2019, by The Tax Justice Network which dealt with accusations against British American Tobacco (“BAT”) having deprived developing countries of hundreds of billions of Rands in tax by using “financial manoeuvring” to shift profits to a UK subsidiary. The Tax Justice Network estimated that BAT, the world’s largest tobacco company, would avoid paying R 10bn between now and 2030 in Bangladesh, Indonesia, Kenya, Guyana, Brazil, and Trinidad and Tobago. https://www.dailymaverick.co.za/article/2018-07-09-who-can-we-trust-and-what-can-be-done-about-illicit-trade-in-tobacco-products/#.W0xyQtUzbIU  https://www.taxjustice.net/wp-content/uploads/2019/04/Ashes-to-ashes_How-British-American-Tobacco-Avoids-Tax-in-Low-and-Middle-Income-Countries_Tax-Justice-Network_2019.pdf
It said that in 2016 alone BAT managed to shift R 13bn, roughly 12% of its group pre-tax profit that year, from overseas companies into its British subsidiary, BAT Holdings. This, it said, reduced the company’s tax bill, partly because UK corporation tax is charged at 19% – lower than many of the countries in which BAT sells cigarettes. These aforementioned figures don’t mention the additional billions BAT is said to owe SARS in South Africa.
In closing, SARS and government as a whole should assume that Big Tobacco seeks to control the track and trace system in order to avoid scrutiny and minimise excise tax payments, and that any track and trace system supported by Big Tobacco, on intellectual property currently or previously owned by Big Tobacco, or being promoted or implemented by companies with Big Tobacco links, is incompatible with the Illicit Trade Protocol to which South Africa is a signatory, and would therefore not serve to reduce illicit trade.
If South Africa is serious about tackling the problem of the illicit trade and getting this essential revenue back into government coffers, SARS has the ability to act under its existing powers. It does not need, and should not accept, assistance from the tobacco industry or its front groups. Not only are the goals of SARS and the industry opposite, SARS as a government entity must also comply with the article 5.3 of the WHO Framework Convention on Tobacco Control that limits the industry’s involvement in government matters. To do otherwise plays into the hand of Big Tobacco and should have South Africans questioning the sincerity of government’s commitment to stamping out the illicit trade. https://www.theguardian.com/business/2019/apr/30/tobacco-firm-bat-costs-developing-countries-700m-in-tax
Issued by the Fair-trade Independent Tobacco Association: 30 April 2019
For queries kindly contact Monique Vogel t: 072 720 7919; e: Monique@fita.co.za