Allegedly illicit cigarette brand takes pole position in SA
Study finds Gold Leaf Tobacco’s RG brand smokes its rivals, selling for less than the tax of R17.85 per pack
SA’s biggest cigarette brand is now allegedly illegal, according to a study that found the illicit market has grown in recent months.
The study, by research firm Ipsos, also found that cigarettes selling for less than the tax of R17.85 per pack — the threshold for the legal market — now account for 42% of sales in the informal market, from 33% earlier in 2018.
That means the South African Revenue Service (Sars) would lose about R8bn in taxes over the next 12 months.
“In a remarkable show of defiance, manufacturers of cigarettes selling below the minimum tax have expanded their distribution at the very same time as Sars has been promising to crack down,” the Tobacco Institute of Southern Africa said on Tuesday.
The institute said Gold Leaf Tobacco’s RG brand was now the top-selling brand in SA overall, having overtaken all legal brands.
The brand sold for an average price of just R10, indicating it was evading the R17.85 owed to the government on each pack.
Gold Leaf Tobacco, which is said to be “aggressively expanding distribution”, could not be reached for comment late on Tuesday afternoon.
Peter Stuyvesant, a “legal” brand, has dropped to second place, followed by Dunhill.
Institute chairperson François van der Merwe said the government should “think extremely carefully” about raising taxes on legal cigarettes again until it could collect taxes from illicit players.
“In these circumstances, another tax increase would be a betrayal of the 12,000 workers whose jobs depend on the legal tobacco sector,” Van der Merwe said.
Legal players could not compete with their tax-evading counterparts, he said.
Marcelo Nico, Southern Africa MD for Marlboro maker Philip Morris, said last week the illicit market was “the single biggest issue for the industry”.
Nico said SA’s mooted tobacco regulations would be an impediment to its plan to phase out traditional cigarette brands in favour of healthier alternatives.
The New York-listed cigarette and tobacco giant wants ultimately to replace all its cigarettes with new products that do not produce harmful smoke, such as e-cigarettes and its new iQOS range of devices that heat instead of burn tobacco.
But South Africa’s Control of Tobacco Products and Electronic Delivery Systems Bill is aimed at restricting communication and marketing of all tobacco products, including e-cigarettes and products such as iQOS.