FITA Press Release 24 February 2021

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Press release – FITA – for immediate release

FITA Press Release 24 February 2021

We note with a degree of disappointment the decision by National Treasury today during the National Budget Speech delivered by Minister Tito Mboweni to impose an 8 percent increase in the excise duties levied on alcohol and tobacco products. This despite the compelling evidence that increased excise taxes for the 2 industries have resulted in a 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 consumption of these products through an increased cost of purchasing the products however, the true story on the ground is that cheaper, non-compliant products are freely available in large quantities in a price-conscious market where 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 too 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. Currently we are seeing a local legitimate tobacco industry that is heavily regulated without any protection being afforded to these legitimate local enterprises, while rogue elements continue to run amok.

A recent report which was released by the Maverick Citizen on Cartel Power Dynamics in Zimbabwe painted 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 heavily on many industries, employers and their employees, the state coffers, and ultimately the citizens of this country.

Legitimate local tobacco industry role-players have over the years repeatedly voiced their concerns to government about the exponential increase in illicit tobacco practices and in particular, the smuggling of tobacco products from Zimbabwe. This was highlighted in the aforementioned report, and the 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, compounded with a substantial increase in excise taxes levied on tobacco products as announced by Minister Mboweni, 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 therefore continue 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 levied on tobacco products in the SADC region. This and other methods of mutual co-operation by revenue authorities of different states has been applied successfully by revenue authorities in other jurisdictions to deal with many illicit practices, 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, particularly over the last few months, we have also pleaded with them to work hand-in-hand as law enforcement agencies, together with the relevant government departments, inter alia in order to 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.

We therefore wish to applaud the establishment of the inter-agency working group of SARS, the South African Reserve Bank, and the Financial Intelligence Centre working jointly on combating criminal and illicit cross-border activities, and we are hopeful that it will yield positive results, and that the criminal syndicates behind the booming illicit trade meet the full might of our law enforcement capacity.

Issued by Fair-trade Independent Tobacco Association Chairperson: Sinenhlanhla Mnguni 24 February 2021

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

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