FITA Press Release 15 February 2021

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Press release – FITA – for immediate release

We note with concern the contents of the Maverick Citizen report on Cartel Power Dynamics in Zimbabwe which was released to the public on the 9th of February 2021.

This report paints a very grim picture of the state of affairs in one of our neighbouring countries, the effects of which are being felt on our side of the border impacting severely on many local industries, employers and their employees, the state coffers, and ultimately the citizens of this country.

The tobacco industry in large has over the years been vociferous about the exponential increase in illicit tobacco and related products emanating from Zimbabwe in particular, which has been highlighted in the aforementioned report, and which unlawful practice has been growing at an alarming rate over the last few years, and particularly following the lifting of the cigarette sales ban in South Africa during the lockdown period in August 2020.

If this situation is allowed to continue unchecked, as currently seems to be the state of affairs, the obituary of many legitimate players in the local tobacco industry will pretty much have been written. The situation seems to be getting worse by the day and all the relevant regulatory authorities appear to have no answers to the challenge posed to them by the criminal syndicates behind these acts.

This is of major concern to our organization and its members as local independent cigarette manufacturers who contribute to the economy directly by way of profit-generation, employment and job creation, and indirectly by way of corporate and personal income tax, customs and excise duties, value-added tax, municipal taxes and other levies and taxes associated with operating businesses in South Africa.

In our engagements with law enforcement agencies, particularly over the last few months, we have pleaded with inter alia the South African Revenue Service to work hand-in-hand with other law enforcement agencies and government departments in order to shore up our borders and protect the sovereignty of this country which is currently being treated as a playground by cigarette manufacturers and traders in our neighbouring countries who act with impunity while legitimate cigarettes manufacturers in South Africa continue to be subjected to ever-increasing regulation.

This issue needs urgent addressing as we are seeing a substantial amount of cigarette brands from all our neighbouring countries, but predominantly Zimbabwe, in the market at present and it is clear that there are many officials are not doing their jobs. To this end we have requested interventions such as the rotation of border control staff, the constant monitoring of officials at all our border posts, and improved screening techniques at our borders.

We further have ad nauseam implored SARS and National Treasury to engage with their relevant counterparts in our neighbouring countries with regards to issues of enforcement and exploring the potential of having a standard excise tax amount on tobacco products in the SADC region.

With the National Budget Speech around the corner government has to have the above in mind when it decides what taxes are levied on tobacco and its related products in the coming financial year and thence forth.

The crafting of tax policy can never be divorced from an understanding of the law of unintended consequences, but it is too often disregarded or misunderstood in political debate, and sometimes policies, however well-intentioned, have unintended consequences that outweigh their benefits. It was found in a recent study in the United States of America on cigarette taxes that one notable consequence of high state cigarette excise tax rates has been increased smuggling as people procure cheaper packs from low-tax states and sell them in high-tax states. Growing cigarette tax differentials have made cigarette smuggling in that country both a national problem and, in some cases, a lucrative criminal enterprise. A statistical analysis of available data to estimate smuggling rates for each state also found that smuggling rates generally rise in states after they adopt cigarette tax increases. Smuggling rates have dropped in some states, often where neighbouring states have higher cigarette tax rates.

The above findings are quoted herein largely to show the consequences of increasing local excise taxes on cigarettes while those levied in our neighbouring countries on the same product are substantially lower and how it compounds the problem of smuggling and the loss of revenue occasioned by this rather than alleviating it, and further how it serves as an encourager to the criminals plying their trade in the illicit economy.

Perhaps it is high time that the fractured local tobacco industry unites to combat something that is a serious threat to its existence as a whole, and that all relevant stakeholders roll up their sleeves and put shoulder to wheel in attending to what we feel is a challenge which is capable of being surmounted. In this regard we also continue to offer our support and assistance, if needed, to government to combat this scourge and rebuild our economy as envisaged by the President.

Issued by Fair-trade Independent Tobacco Association Chairperson: Sinenhlanhla Mnguni 15 February 2021

For queries kindly contact Monique Vogel t: 072 720 7919; e: Monique@fita.co.za

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