Ahead of finance minister Tito Mboweni’s mid-term budget speech, the South Africa Tobacco Transformation Alliance is looking for support after the government’s ban on cigarettes during the coronavirus lockdown devastated local tobacco farmers while playing into the hands of the illegal market.
Zacharia Motsumi, a spokesperson for the Alliance, which represents around 11,000 tobacco farmers, processors and manufacturers, said that the government had also lost out on excise revenues due to the lockdown and needed to take action.
“There can be absolutely no doubt who the biggest winners were, though: it was the shady characters who deal in illicit cigarettes. They were already making money hand over fist before Covid-19, but the lockdown was manna from heaven for them,” he said.
Motsumi sees only one way for the government to increase the legal sales volume and that is by not increasing the excise on tobacco products, reports Business Tech.
“This can be done by the National Treasury not increasing excise now but adhering to its policy of 40% excise incidence for cigarettes. At the same time, law enforcement agencies must directly tackle the illicit trade in cigarettes which has heavily impacted our value chain. It is no secret that SARS is currently struggling with capacity to arrest and bring those guilty of illicit trade to book,” says Motsumi.
The Alliance also proposes that the National Treasury adopts a “minimum price level” (MPL) for cigarettes which would allow law enforcement agencies and consumers to recognise illegal cigarettes by their cheap price – the most obvious sign that excise duties are not being paid, according to Motsumi.
“For example, if Treasury adopts an MPL price point of R28 for all retail sales of cigarettes, any cigarettes sold below this price would clearly not be tax-compliant given the amount that needs to be paid in excise,” he said.