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R4bn in tax has gone up in smoke

Monday, 16 November 2015   (0 Comments)
Posted by: Author: Denise Williams
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Author: Denise Williams (The Citizen)

The illicit tobacco trade has robbed the South African economy of more than R24 billion since 2010.

CEO of the Tobacco Institute of Southern Africa, Francois van der Merwe, said this meant roughly R4 billion was being lost in tax revenue each year as a result of illicit trade.

He said 23% of all cigarettes smoked in the country in 2015 were illegal. This meant that of the total number of boxes smoked a day; 700 000 were illegal in this country. This amounted to daylight robbery of the fiscus of between R10 and R12 million a day. Van der Merwe was speaking to the media on the sidelines of the Anti-Illicit Trade Conference held in Cape Town recently.

Deputy minister of police Maggie Sotyu was also present. He said of the 23%, more than half were manufactured in South Africa and had not been declared for tax purposes, with the balance being smuggled into the country by "an ever-growing network of criminals and syndicates”. The number had, however, declined from 31% in 2013 but still presented a problem.

"We believe that the most critical area of track and trace is an authentication and verification system. The authorities need to be able to trace product back to a manufacturer so that the excise due can be verified,” Van der Merwe said.

He said the diamond stamp (a hardly noticeable "SA” imprint) on the box did not link the product back to a South African manufacturer. This meant that SA Revenue Services was unable to verify whether the excise duty had been paid or not. Excise duty is an in-country tax charged to manufacturers for products produced in South Africa in this instance.

Van der Merwe explained that smokers should be "suspicious” of buying a box of 20 cigarettes for under R18. For every box, R12.42 went to government excise duties. When lumped with value added tax (VAT) a box should at least cost R14.16.

"Various forms of licensing already exist, but the challenge lies in enforcement. We need to see investigation of rogue manufacturers and revocation of manufacturing licences where they are found to have contravened the law,” he said.

Another hurdle was international cooperation, including cross-border enforcement, training, joint investigations, extradition and regional administration and legal assistance.

Sotyu said the approximate R24 billion revenue loss since 2010 was of concern, and meant the South African government continued to be deprived of much needed tax revenue to subsidise education and other basic human needs such as water, sanitation and electricity, she said.

She added that "something was not right at the borders” and it was important that the Department of Home Affairs gets the order management agency up and running as soon as possible. Indications were this would be functional within the next six to 12 months.

"The nature of the illicit trade demands better cross-border coordination and cooperation,” said Sotyu.

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