Clamping down on SA’s illicit tobacco trade is possible with political will
Evidence shows that all manufacturers have a role to play in the ongoing illicit trade in cigarettes
SA has until Thursday to make comments on the Draft Control of Tobacco Products and Electronic Delivery Systems Bill, which has been out for public deliberation for three months.
The bill, in essence, aims to reduce the prevalence of smokers in SA, which has plateaued at 19% of the population for the last decade. It proposes to do this by removing indoor smoking areas and regulating the use and sale of e-cigarettes. At the same time, it aims to protect 81% of the population from harmful second hand smoke.
However, these proposed legislative changes have been challenged by the tobacco industry and those that suggest the illicit trade in tobacco is growing. In the latest attempts to challenge the bill and divert attention from the necessity for these legislative changes, they’ve raised questions about the socio-economic impact assessment (SEIA) of the bill done by the department of health. The SEIA has been called a motivation rather than an objective assessment of the risks, benefits and costs attached to the bill.
Pushback from the tobacco industry is not new. In recent months, South Africans have been privy to the gripping drama of the tobacco wars, illicit trade and tax evasion as a result of the very public calamity surrounding the South African Revenue Service (Sars). These have been fueled by explosive revelations at the Nugent Commission of Inquiry into tax administration and governance, which has centred on suspended Sars commissioner Tom Moyane, as well as his disciplinary hearing.
The National Prosecuting Authority was asked to charge 15 local manufacturers and importers as early as 2014 for R12bn in unpaid taxes related to their involvement in tax evasion and the illicit trade. That no one has yet been charged indicates a lack of political will to deal decisively with this issueSavera Kalideen, director of the National Council Against Smoking
The most damning information at the commission has been critical evidence presented by Cecil Morden, former chief director in the economic and tax analysis unit at the National Treasury. Morden revealed the significant decline in the revenue SA has collected from excise duty on tobacco between 2014 and 2018, primarily the result of a lack of enforcement, which has resulted in an increase in the illicit trade. Secondly, he noted a decline in the number of cigarettes declared to be produced in SA. This, too, possibly stems from attempts to evade taxes or the involvement of some cigarette manufacturers in the illicit trade.
Days later, Ipsos released a market study report commissioned by the Tobacco Institute of Southern Africa (Tisa) that claimed that Sars — under the leadership of Moyane — had cost SA R7bn in lost tobacco excise revenue since 2015.
There are a few relevant observations to be made. First, the Ipsos report needs to be seen as the latest battle between competing manufacturers vying for the market share of the South African tobacco industry. This competition has resulted in the so-called "Sars wars" over the past four years.
Secondly, it is not only the R7bn that South Africans need to focus on. Morden’s evidence, along with the Tisa-commissioned report, ultimately shows that all manufacturers have a role to play in the ongoing illicit trade in cigarettes.
The National Prosecuting Authority (NPA) was asked to charge 15 local manufacturers and importers as early as 2014 for R12bn in unpaid taxes related to their involvement in tax evasion and the illicit trade. That no one has yet been charged indicates a lack of political will to deal decisively with this issue. And the noise about the shifting size of the illicit trade is purely an attempt to sensationalise a real problem — one that has had a solution for years but which has not been acted on.
The third observation relates to the steps needed to eliminate the illicit trade in tobacco as outlined in the department of health’s socio-economic impact assessment. The most recent global figures suggest that Africa loses $1bn annually to the illicit trade in tobacco. This is mostly driven by tobacco manufacturers in a bid to evade paying taxes; this in turn reduces revenue collection. At the same time, not paying taxes results in a cheaper product, making cigarettes more accessible to the population and undermining public-health goals.
The solution is a track and trace system that has been proposed in the Protocol to Eliminate Illicit Trade in Tobacco Products. The protocol forms part of the World Health Organisation’s Framework Convention on Tobacco Control — a global treaty to guide countries on how to reduce tobacco consumption. The protocol will be in force from September 2018 after more then 53 countries adopted it. SA signed the protocol in 2012, but has not yet ratified it nor taken any steps to implement it.
To date, Kenya is the only African country to have implemented a track and trace system. As a result, the country’s revenue agency has intercepted 37.4-million diverted cigarette exports worth about R23m saving an estimated tax loss of just less than R15m. These numbers are paltry in comparison to the figures being bandied about in SA, but they provide evidence that the system does work.
The challenge in SA — as in the rest of the world — is that the tobacco industry has tried to malign evidence-based and necessary policy changes by spreading misinformation and leaving out pertinent facts about its own role in the illicit trade.
The South African taxpayer is being robbed by elements in this industry who do not pay taxes, who are involved in the illicit trade, and whose products cause ill-health. This, once again, becomes the problem for the taxpayers’ purse. It is time to introduce and implement the Draft Tobacco Bill, as well as the Protocol for the Elimination of the Illicit Trade in Tobacco Products. And It is time to take back the tax by making the importers and manufacturers pay what they owe — and pay for the devastation their products can cause.
• Kalideen is the executive director of the NGO, National Council Against Smoking.