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Billions lost through illicit cigarette trade

South Africa exceeded the global average of trade in illegal cigarettes in 2011 by eight to 12% resulting in a staggering 7,5 billion tax-, excise- and VAT free cigarettes – mainly from Zimbabwe – dumped on local consumers.

It is estimated that SA’s trade in illegal cigarettes has doubled over three years with the trade making up well over 25% of the total cigarette market. This equals a whopping 6 billion illegal cigarettes sold every day.

Seen as the fastest growing tobacco ‘category’ globally, illegal cigarette sales results in lost of income to the South African government’s coffers of at least R7 billion annually. Dominant hotspots for illegal sales are Gauteng and the Western Cape, and of the 7,5 billion sold in 2011 alone at least 4 billion originated from Zimbabwe.

There are two ways illicit cigarette sales negatively influence the economy – evasion of taxes on brands imported or manufactured in South Africa; and the counterfeiting of a legal brand. Locally the evasion of taxes is the most common one.

Some 19 million illegal cigarettes – equivalent to 950 000 packets of 20s are sold locally every day. Legitimate retailers lose more than R500 million annually while legitimate job creation and economic development goes up in smoke. The legal tobacco industry loses over R2 billion annually to the trade in illegal cigarettes.

If a retailer, or reseller, is caught with illicit products and prosecuted under the Customs and
Excise Act (evasion of taxes), the penalties are:
• a fine of R20 000 or three times the value of the goods;
• up to 5 years in prison;
• a person prosecuted can therefore pay a fine and go to jail; and
• if prosecuted under the Tobacco Controls Act (non-compliant product) the penalties are up to R1 million.

Cigarettes such as Safari smuggled into South Africa mainly from Zimbabwe and Mozambique to avoid tax, excise and VAT costs the South African government over R7 billion a year in lost income.

 

 

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