FITA Press Release 23 February 2022

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Press release – FITA – for immediate release

We note with a degree of disappointment the decision by National Treasury today, during the National Budget Speech delivered by Minister Enoch Godongwana, to levy an increase in the excise duties on tobacco products. This despite the compelling evidence that increased excise taxes for the industry has led to the growth of an already booming illicit trade.

Theoretically it may appear sound to increase taxes for purposes of inter alia reducing the burden on the healthcare system that is associated with the use of these products by deterring use through an increased cost of purchasing the products however, the real story on the ground is that cheaper, non-compliant products are freely available in large quantities in the market and consumers are being driven towards them in numbers due to the rising cost of legitimate products as a result of the taxes levied therein.

It is a well known concept that 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. Sometimes policies, however well-intentioned, have unintended consequences that outweigh their benefits.

In a perfect system an argument could be made for an increase in excise taxes on tobacco products but unfortunately, we are all to aware of the shortcomings of our many law enforcement agencies, the details of which have been laid out bare in the media, and in the many commissions of inquiry we have become accustomed to.

It is fact that excise in our neighbouring countries is far lower than in South Africa and thus, as a result, South Africa has become fertile soil for illicit trade.

Currently we are seeing a local legitimate tobacco industry that is heavily regulated but, we are seeing no protection being afforded to these legitimate local enterprises, while criminal syndicates and certain manufacturers in our neighbouring countries continue to run amok.

Legitimate local tobacco industry roleplayers have over the years repeatedly voiced their concerns about the exponential increase in the illicit tobacco trade and the smuggling of cigarettes from our neighbouring countries, and in particular from Zimbabwe via the Beitbridge border post, which scourge has of late received some attention from the media.

The illicit trade has unfortunately been growing at an alarming rate over the last few years, and particularly since the cigarette sales ban in South Africa during the lockdown period in 2020.

If this situation, compounded with a substantial increase in excise taxes levied on tobacco products as announced by Minister Godongwana is allowed to continue unchecked, the revenue collected on these products is more than likely destined to plummet as the reward for non-compliance will be seen to outweigh that of being compliant. This is the growing reality and there seems to be no solution forthcoming from the relevant regulatory authorities.

We again wish to implore 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.

This method of mutual co-operation by revenue authorities of different states has been applied successfully by revenue authorities in other jurisdictions to deal with this particular issue, and we are of the firm view that it is high time that same is explored by our authorities.

In our engagements with law enforcement agencies we have pleaded with them to work hand-in-hand as law enforcement agencies, together with the relevant government departments, in order to inter alia shore up our borders, and to 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.

Issued by Fair-trade Independent Tobacco Association Chairperson: Sinenhlanhla Mnguni 23 February 2022

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

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