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Illegal cigarette trade costing taxpayers R5bn a year

Tisa says 31 percent of 30 billion cigarettes smoked in South Africa annually are illegal.

FILE: The illegal cigarette trade has come under the spotlight at a conference in Cape Town. Picture: EWN.

JOHANNESBURG - The illegal cigarette trade has come under the spotlight at a conference in Cape Town attended by authorities including the Hawks, police unit Europol and the Tobacco Institute of South Africa (Tisa).

Speaking to Radio 702's Redi Tlhabi on 26 November, Tisa chief executive Francois van der Merwe said unless South Africans pull together and stub out the illegal cigarette trade, South Africa won't be a preferred destination for investors.

Tisa says 31 percent of 30 billion cigarettes smoked in South Africa annually are illegal, costing the government around R5 billion a year in tax revenue.

IMPACT OF BUYING ILLEGAL CIGARETTES

Van der Merwe said buying illegal cigarettes has a major social impact specifically with regards to human trafficking rings and other organised crime activities.

He said the money from the trade funds these crime syndicates.

"R11,60 of every pack of cigarettes goes to government in excise tax alone. Add to that, around R2,00 vat. That leaves less than R3,00 for that pack to be manufactured, transported, the farmers, retailers, manufacturers and transporters to make a profit.

Tisa is working with the South African Revenue Service (Sars) to urge government to bring in modern technology to help combat the problem.

"We're also working to find a tool for enforcement in the market to immediately authenticate a product with a cellphone scanner."

TOBACCO COMPANIES UNDER SCRUTINY

Other big tobacco companies are also under close scrutiny after one of the world's largest cigarette firms was for oversupplying foreign markets. Last week, British American Tobacco (BAT) was slapped with a hefty R11.2-million fine for oversupplying cigarettes to the Belgian market.

Because tobacco products in Belgium have a lower tax rate, the practice has meant the surplus can be smuggled back to the UK, according to the Wall Street Journal.

Dr Yussuf Saloojee, Executive Director of the National Council Against Smoking has pinned some of the blame on Tisa saying it's part of the problem, "I'm afraid the chief of Tisa is being hypocritical,"

he told Tlhabi.

"He exaggerates the level of smuggling claiming 20 percent of cigarettes in South Africa were being smuggled, while independent experts put it at half that level. But more interestingly, its own members have been accused of smuggling

"What Mr Van der Merwe calls respectable, legitimate players have been found guilty of facilitating smuggling. In Canada for instance, the subsidiary of BAT was fined for defrauding the Canadian government of millions of dollars in taxes.

"If they are really serious about this problem, they need to look at the activities of their own members, rather than other people."

Van der Merwe hit back saying Saloojee could not be taken seriously as he was an anti-tobacco activist.

"As for the problem being exaggerated, I quote independent research, so let's get the researchers in the room and sort this out. When senior executives of Sars address Parliament, they use figures that come from this research. Certainly a reputable institution like Sars wouldn't use false information. There are too many allegations flying around and newspaper articles saying big companies are involved in smuggling, but the fact of the matter is that Tisa represents the legal sector. Our members are regularly audited by Sars and found to be compliant.

"Lastly, we had the privilege of having National Police Commissioner Riah Phiyega at our conference yesterday as our guest speaker. She recognised Tisa as the legitimate representative body for the tobacco sector in our country and in the region."

However, Saloojee spoke out in favour of a World Health Organisation solution to the problem.

"The industry worldwide has been found guilty of aiding smuggling, for the simple reason that they get the same amount of money whether they sell to a legal buyer or a smuggler. The loss to Treasury comes in when suppliers sell without paying taxes.

"Smuggling also creates pressure on the revenue service to keep taxes on cigarettes low because the industry says smuggling is high because of taxes which is not true. Many countries have low tax rates with high levels of smuggling. The real problem is corruption, the real solution, proposed by the World Health Organisation which is for governments around the world to cooperate and work together to identify smuggling rings."

Van der Merwe said if there is proof that one of Tisa's members have transgressed, then action will be taken.