NEWS
06/07/2018 05:24 SAST | Updated 06/07/2018 05:44 SAST

'BAT SA Exports Profits; We Don't!' Fumes SA's 'Illicit' Cigarette Manufacturer

A study funded by Big Tobacco claims Sars is losing R7-billion in excise duties to cheap cigarettes – but new players say ‘Look at what British multinational BAT SA exports in profits.’

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Peter Stuyvesant, a cigarette brand owned by British multinational BAT SA, is getting burnt by RG, a rival brand produced by Gold Leaf Tobacco, a company owned by Ebrahim Adamjee and the Zimbabwean magnate Simon Rudland.

A report released on Thursday by the Tobacco Institute of South Africa (Tisa), a lobby group funded by Big Tobacco in South Africa, has alleged that relative newcomers like Gold Leaf operate illicitly by selling new brands at prices so low that they must be engaged in a tax dodge.

Any pack sold at less than R17.85 is regarded as illicit, because the full tax is not being paid on it.

A 4,000-outlet study by Ipsos for the institute has found that RG is now the second-highest-selling brand in the country, and Gold Leaf produces more than half the "ultra-cheap cigarettes" — which is threatening the established industry.

The Tobacco Institute study found cigarettes being sold for as low as R6.00 a pack on South African streets. Any pack sold at less than R17.85 is regarded as illicit, because the full tax is not being paid on it. South Africa taxes cigarettes at extremely high excise duties, which is meant to deter people from smoking the carcinogenic (cancer-causing) product.

"Tisa assumes that brands selling below the tax-owed price have not paid all taxes to SARS and are illicit," said the lobby group, which revealed that almost eight in 10 cigarettes being smoked are "ultra-cheap" or illicit cigarettes, and that they make up 26.8 percent of total retail sales.

Rogan Ward / Reuters
Government workers destroy counterfeit cigarettes in Durban June 24 2011. The Tobacco Institute of South Africa together with the South African Revenue Service destroyed a total of 225-million illicit cigarettes in 2011.

The old-established tobacco industry alleges that after Tom Moyane became Sars commissioner in 2014, the new illicit tobacco economy thrived because inspections at factories were stopped. So was Operation Honey Badger, one of the biggest and most successful operations of the High Risk Investigations Unit at SARS before it came under sustained political attack. Honey Badger was a multifrontal attack on the tobacco industry to improve the tax take from it.

The Ipsos survey found that at least 8-billion cigarette sticks on the market are illicit resulting, in a loss of R7-billion for this year — which compromises 14 percent of the shortfall of R50-billion in revenue this year.

Gold Leaf alleged that its RG brand was suffering counterfeits flooding the market from a Lesotho-based manufacturer.

Tisa chairperson Francois van der Merwe said that "cigarette money played a role in state capture", by which he means that the industry was moved underground and that tax dodging through political protection became a bigger and bigger trend.

Gold Leaf's Adamjee claimed the study was biased and that the focus should fall on BAT SA's ownership structure — which he said is only 11.4 percent locally held, with the rest being foreign-owned. This meant that BAT SA was exporting profits far in excess of the R7-billion it alleged the "ultra-cheap" manufacturers were costing the fiscus in unpaid taxes.

The company alleged that its RG brand was suffering counterfeits flooding the market from a Lesotho-based manufacturer, and said in a statement on Thursday that it paid R1-8 billion a year in excise duties.

Adamjee asserted that the study was a market-protection ploy by an industry that is untransformed. He called for a rebate or a tax reduction for new players to level the playing field in the R54-billion industry, which employs 108,000 people.