Tag: South Africa

Illicit Trade Persists After Lockdown

Photo: Tobacco Reporter archive
The illicit cigarette trade continues to thrive in South Africa despite recent enforcement actions, according to a new Ipsos study.
According to Ipsos’ latest study, shops nationwide are still flooded with illegal tobacco products more than two years after the unconstitutional tobacco sales ban was imposed by the government as part of their response to the Covid-19 pandemic.
The study found that almost four out of five stores in the Western Cape (77.9 percent) sell cigarettes below the minimum collectible tax (MCT) rate of ZAR22.79 ($1.28) per pack. Almost three in four shops in Free State (72.3 percent) sell cigarettes below the MCT as do 66.2 percent of outlets in Gauteng, a significant increase compared to research conducted a year ago.

“The latest Ipsos study is irrefutable proof that the unconstitutional lockdown tobacco sales ban created a monster with an insatiable appetite.”
Johnny Moloto, general manager, BAT South Africa
A single pack of 20 cigarettes can be bought for as little as ZAR7, down from ZAR8, which was the lowest price found in the October 2021 study, according to Ipsos.
“The latest Ipsos study is irrefutable proof that the unconstitutional lockdown tobacco sales ban created a monster with an insatiable appetite,” said Johnny Moloto, general manager of BAT South Africa.
“Criminal manufacturers of tax-evading cigarettes are refusing to give up their control of the South African tobacco market and are pocketing billions in illicit profits that deprive the state of vital revenue and destroy honest jobs.”
November 9, 2022
Gold Leaf Tobacco’s Assets Remain Frozen

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A South African court on Nov. 7 postponed a hearing about the frozen assets of Gold Leaf Tobacco until Jan. 30. 2023, reports News24.
At the end of August, the South African Revenue Service (SARS) secured a provisional preservation order in court against Gold Leaf and its directors Simon Rudland and Ebrahim Adamjee. The tax agency suspects Gold Leaf and its directors underpaid tax and hidden assets.
The preservation order prevents the tobacco group and its directors from selling any assets while the tax agency investigates the case.
Gold Leaf and Rudland denied any wrongdoing.
According to the provisional preservation order, the initial return date for the case was Nov. 7. At this hearing, the respondents get to argue why the order should not be made permanent.
Gold Leaf holds the distribution rights for brands such as Voyager, RG, Chicago, Sahawi, Sharp and Savannah.
November 7, 2022
Stricter Rules Ahead

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The South African Parliament accepted submission of the Tobacco Products and Electronic Delivery Systems Control Bill, which will replace the Tobacco Products Control Act of 1993, reports Business Insider.
The bill, which was tabled in 2018, aims “to deter people, especially children and youth, from using tobacco products, encourage existing users to quit and protect nonsmokers from tobacco smoke exposure.” Regulation will cover sale, advertising, packaging and labeling of tobacco products as well as where smoking and vaping are allowed.
Under the bill, smoking and vaping in enclosed public spaces will be prohibited. Smoking too close to “an operable window or ventilation inlet of an entrance or exit” of “an enclosed public place, enclosed workplace or in or on a public conveyance” is also prohibited.
The health minister can also prohibit smoking in certain outdoor areas to “reduce or prevent the public’s exposure to smoking.” Smoking in vehicles or enclosed private spaces while in the presence of a child or nonsmoker will be prohibited. Smoking in an enclosed common area of a multi-unit residence will be banned as well.
The bill will also mandate generic packaging for tobacco products; the packaging “must have a uniform plain color and texture” and be of the same “size, type and shape.” The health minister will be responsible for setting standardized packaging and labeling requirements.
The only branding allowed on packaging will be brand name and product name in a standard color and typeface. Packages will be dominated by graphic health warnings.
Additionally, stores will only be allowed to display “a single prescribed notice informing consumers that a list of relevant or related products for sale, along with their prices and quantities, may be requested at the sales counter.” Retailers and wholesalers will no longer be allowed to display tobacco products. They “may make the product available to consumers upon request, provided that the requestor is not a child.”
This bill could also affect flavored vapor products. The health minister can prohibit “any substance or ingredient that creates a specified color, characterized flavor, smell or effect on the consumer.”
“The industry wants to be regulated,” said Asanda Gcoyi, CEO of the Vapour Products Association of South Africa. “We have to be regulated.”
“But we propose that government use [vapes and e-cigarettes] as a tobacco harm reduction product, [and] this bill does not actually go that far.”
October 5, 2022
Gold Leaf Assets Seized

Photo: Comugnero Silvana
The South African Revenue Service (SARS) on Aug. 26 took charge of all assets belonging to the Gold Leaf Tobacco Co. and those of its directors following a probe into tax evasion.
According to News24, SARS investigators believe they have evidence that GLTC was involved in in money laundering and may owe up to ZAR3 billion ($177.7 million) in undeclared taxes.
Fearing that GLTC’s assets alone may not cover its possible fiscal debts, the SARS targeted the assets of the assets of GLTC directors Simon Rudland and Ebrahim Adamjee.
Yusuf Abramjee, the founder Tax Justice SA, described the development as a “huge breakthrough in the battle against the illicit cigarette trade.”
“For over a decade, GLTC have been the prime suspects as South Africa’s illegal cigarette trade has grown into a national menace of devastating proportions,” he said.
Rudland and Adamjee told the tax inquiry they had done nothing wrong and declared all GLTC’s taxes to SARS.
The South African press has described Rudland as an “oligarch” associated with Zimbabwean President Emmerson Mnangagwa. “The Rudlands consistently make the news as members of the powerful political and economic elite in Zimbabwe, propping up [Zimbabwe’s governing party] Zanu-PF,” wrote The Daily Maverick.
August 28, 2022
Top Court: South Africa Tobacco Ban Invalid

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South Africa’s Supreme Court of Appeal (SCA) on June 14 upheld a high court judgement that declared the ban on tobacco products sales during the Covid-19 pandemic unconstitutional, reports Times Live.
In March 2020, Co-Operative Governance and Traditional Affairs Minister Nkosazana Dlamini-Zuma banned the sale of tobacco products to contain the spread of Covid-19.
In June 2020, British American Tobacco, JT International and several tobacco product consumers asked a court to invalidate the ban.
The matter was heard by a full bench of the court in August 2020 and judgment was reserved. Later that month, the minister lifted its tobacco sales ban.
Despite the lifting of the ban, the court passed judgment in December 2020 declaring the regulation inconsistent with the constitution and invalid.
The government appealed the ruling, but lost.
In its June 14 judgment, the SCA said assuming there was a causal link between smoking and the risk of contracting a more severe form of Covid-19, the minister would have had to show that stopping smoking during the tobacco ban would have reversed or reduced the risk of contracting a severe form of Covid-19.
The SCA said this had not been established as evidence.
As regulation 45 was not necessary to achieve any of the purposes listed in section 27 of the Disaster Management Act, it was invalid, the court noted.
Section 27 states that in the event of a national disaster the minister may make regulations dealing with steps that may be necessary to prevent the escalation of the disaster or to alleviate, contain and minimize the effects of the disaster.
June 17, 2022
South Africa: Concern Over New Vaping Rules
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The Free Market Foundation is concerned that the South African government’s plans for regulating vaping products will push more people back toward smoking combustible cigarettes and buying from the black market, reports BusinessTech.
“The South African government argues that e-cigarette and vaping products are harmful and warrant regulation,” the Free Market Foundation said. “However, e-cigarettes and vaping innovations are tobacco harm reduction products aimed at mitigating the adverse health impacts associated with combustible tobacco products.”
“The total excise duty to be levied on nicotine and a non-nicotine solution, e-cigarettes and vaping, will range from ZAR33.30 [$2.28] to ZAR346. Therefore, poorer communities suffering disproportionately from tobacco-related diseases would be more incentivized to continue smoking cigarettes than pick healthier alternatives.”
“In reality, smokers may simply opt for illicit products, which are cheaper and constitute 42 percent of the informal market for cigarettes. Additionally, illicit goods are more harmful since production standards are not adhered to.”
The illicit cigarette market in South Africa grew substantially during a temporary ban on tobacco and it has yet to shrink to pre-lockdown volumes.
“National Treasury’s proposals to tax e-cigarette solutions that contain no tobacco or nicotine may, in particular, be questioned by some stakeholders as it does not necessarily support the government’s stated policy intention of reducing the consumption of tobacco products,” said Webber Wentzel, a legal firm. “It also could stimulate the illicit trade in e-cigarettes as has happened in the tobacco sector.”
The proposed tax would go into effect Jan. 1, 2023, if passed.
March 28, 2022
Top Court Reviews Tobacco Ban

The government wants to overturn a lower court’s verdict that the ban was unconstitutional.
South Africa’s Supreme Court of Appeal heard an appeal on Thursday arguing that the tobacco ban during the country’s Covid-19 lockdown was justifiable under the constitution, according to the Times Live.
In December 2020, the Western Cape High Court found that the tobacco ban had breached a number of human rights under the constitution and that the ban was unlawful because it was not “necessary” to prevent escalation or alleviate effects of the disaster (the coronavirus pandemic) as required by the Disaster Management Act.
The ban has not been in effect for a while, and President Cyril Ramaphosa said that the national state of disaster would soon be lifted as well, according to his state of the nation address. It is not guaranteed that another state of disaster would not be declared due to new and potentially more harmful Covid-19 variants, however. The court decision on the tobacco ban is important, then, because it would set precedent for future states of disaster.
“In a situation of evolving scientific knowledge, and with infection numbers rising and likely to continue to do so, the government had to take a cautious approach,” said Andrew Breitenbach, counsel for the government, arguing that the court judgment should not stand.
The goal of the ban was to relieve the strain on the healthcare system, and Breitenbach argued that the science at the time showed that smokers had higher rates of hospitalization and severe illness from Covid-19.
Alfred Cockrell, counsel for BAT South Africa, said it that the government needed to show that stopping smoking during lockdown would reverse or lessen the progression of Covid-19, not just that stopping smoking had an immediate “general good” effect.
“The point is that the dangers from cigarette smoking result from long-term chronic use,” Cockrell said.
More than 18 months after South Africa lifted its tobacco ban, the country is still coping with elevated levels of illicit cigarette sales.
March 4, 2022
Damage Done

Soldiers of the South African National Defense Force guard confiscated cigarettes. (Photo: SANF)
Eighteen months after lifting its cigarette ban, South Africa still struggles with inflated illicit sales.
By Stefanie Rossel
Sometimes the best intentions yield the worst possible outcome. In an effort to protect its citizens from the impact of Covid-19, the South African government banned the sale of alcohol, cigarettes and vape products from March to August in 2020.
For the legal cigarette market, the move backfired: Illicit trade, which according to market leader BAT South Africa (BATSA) already accounted for approximately 33 percent of all cigarettes sold in South Africa before the ban, soared to unprecedented new levels. “With very weak enforcement by government during the ban, the legal industry adhered 100 percent to the ban, but it gave the illegal players a golden opportunity to take over 100 percent of the market during that time,” explains Francois van der Merwe, advisor to the South Africa Tobacco Transformation Alliance.
One and a half years after the ban was lifted, illicit tobacco still claims an estimated 60 percent of the total market, one of the highest shares in the world and only comparable to Malaysia. Out of a total market of more than 32 billion sticks, only 12 billion to 13 billion cigarettes were tax-paid in 2021, according to van der Merwe.

Francois van der Merwe
An online survey by the University of Cape Town’s Research Unit on the Economics of Excisable Products (REEP) showed that 90 percent of smokers continued to purchase cigarettes during the lockdown. Unable to buy their pre-lockdown brand, 46 percent of smokers switched from a multinational company brand to a brand produced by a local producer. Most of these licensed companies are members of the Free-Trade Independent Tobacco Association. Critics contend they conducted illegal business by selling vast quantities of their products at a fraction of the minimum collectible tax of ZAR21.60 ($1.41) per pack of 20—sometimes for as little as ZAR6 per pack.
According to BATSA, these companies manufacture and earn profit on vast volumes of cigarettes while paying the South African Revenue Services (SARS) only a small portion of the tax owed. BATSA estimates that this under-declaration costs the country’s treasury at least ZAR8 billion annually. For the 2021–2022 government fiscal year, this figure is expected to rise to ZAR21 billion. BATSA reckons that more than 90 percent of all illegal cigarettes in South Africa are manufactured locally.
During the lockdown, illicit whites were freely available, although at hugely inflated prices. The temporary sales prohibition dramatically changed the purchasing environment, the REEP survey found. Before the lockdown, 56 percent of smokers had bought their cigarettes from formal retailers, but only 3 percent did so after the ban had been lifted. The percentage of smokers who purchased from small informal spaza shops in townships increased significantly. Street vendors, friends and family or “essential workers” became new sources of cigarette supply. The profitability of dealing with illicit cigarettes attracted a range of new players, including crime syndicates, but also civilians seeking to make a living amid a worsening economic crisis.
The financial damage of the ban was immense: It cost the government ZAR5.8 billion in tobacco tax revenue from BAT alone. In addition, the government lost a court case filed by the tobacco industry regarding the constitutionality of the ban. BATSA said it lost more than ZAR2 billion due to the sales ban.

Johnny Moloto
Smuggling Prevails
While alcohol sales largely recovered after restrictions were relaxed, legal cigarette sales continued to languish. “Consumers have become used to buying illicit products, and this will make it increasingly difficult to eradicate the illicit trade,” says Johnny Moloto, general manager at BATSA. “The fiscus is projected to lose ZAR19 billion in cigarette excise tax in the 2021–2022 fiscal year alone as a result, which the country cannot afford.”
In November last year, Ipsos found that illegal cigarettes were available in almost half of stores (43 percent) nationwide. Cigarettes are selling for the equivalent of ZAR8 per pack, close to a third of the ZAR21.60 in tax that should have been paid. “It is clear that taxes on these products could not have been paid by the manufacturer,” says Moloto.
While reliably measuring illicit trade is inherently difficult everywhere, it is even more complex in South Africa, where cigarette packs don’t carry security features, such as stamps, indicated tax payments and illicit manufacturers comply with health warning requirements. The Ipsos study therefore used the “mystery shopper” model, under which researchers bought the cheapest cigarettes in almost 5,000 stores nationwide. Its findings echo those of the REEP survey. The ban, it said, would feed an illicit market that “will be increasingly difficult to eradicate when the lockdown and Covid-19 crisis is over.”
Ahmad Ismail, general manager for southern Africa at Japan Tobacco International, believes South Africa has now reached that point. “The legal industry declined by over 40 percent alone during the Covid-19 tobacco ban,” he says. “Illicit tobacco flourished with very little enforcement during the lockdown. We have also witnessed an increase in cross-border smuggling in and out of South Africa, which was a problem that we had not experienced in several years. It will take more than three years for the legal industry to recover—not fully—if government acts immediately.”
“The failure of government to enforce its own regulations during the sales ban was a golden opportunity for illicit operators to establish their brands firmly in the market in the absence of the legal brands,” says van der Merwe. “By dropping their prices post the lifting of the ban, they simply retained their market share, and the legal tax-paying brands are struggling to regain lost market share. With the lower volumes of legal brands, this resulted in many thousands of job losses across the value chain, including the most vulnerable jobs on farms in rural areas, but also in factories processing leaf and manufacturing products.”
At an annual tax conference in 2021, the SARS commissioner noted that the lockdown brought about a proliferation of illicit cigarettes that has now embedded itself as an alternative to the regular brands. He said the SARS was fighting a losing battle in this regard.

Ahmad Ismael
Concerted Efforts Needed
Although the major legal cigarette manufacturers in South Africa have called on the SARS and law enforcement agencies to increase their efforts to prevent criminal networks from selling illicit cigarettes, little has been done so far. In May 2020, the SARS canceled a tender for a track-and-trace system. “One of the main challenges was the lack of consultation with the industry, as local manufacturers and wholesalers would have been required to implement the system and bear the cost of implementation,” says Ismail. “Another challenge was that South Africa did not ratify the Framework Convention on Tobacco Control (FCTC) Protocol on Illicit Trade (ITP) and that the tender was not in line with the FCTC approach. This would have enabled them to align the system with global guidelines and systems being implemented and allocate a budget dedicated to fully comply with the protocol guidelines following a recommended and tested process implemented in Europe.”
In 2020, the SARS instructed all cigarette manufacturers to install production counters that report directly to the authorities how many cigarettes are coming off the production line in real time. Moloto, whose company believes not enough is being done to combat illicit trade at this point, argues that this measure had not been enforced. Ismail claims that while being a step in the right direction, the system still relies on the transparency of manufacturers to report on their production levels.
Moloto says the South African government must act to stop the flow of illicit cigarettes before the problem becomes even more entrenched. Both BATSA and JTI have asked the government to ratify the ITP immediately. “South Africa has been a founding member of the FCTC where the former minister of health, Honorable Dr. Aaron Motsoaledi, signed the ITP in Geneva in January 2013,” says Ismail. “Putting in place a track-and-trace system would allow tobacco products to be traced from the manufacturer to the wholesaler and to retail and contribute to the reduction of massive illegal cigarette trade.”
JTI believes that a full digital volume verification system, in combination with a track-and-trace system, would be the most effective and affordable migration. This would give the government real-time insight into what is manufactured and thus help it curb under-declaration and tax evasion.
“Track-and-trace aimed at tracking cigarettes from manufacturing plants to point of sale on its own will not prevent illicit trade,” Ismail admits. “However, it will support law enforcement agencies and legitimate businesses working in collaboration to reduce the problem. Consistent audits by the SARS need to continue, seizures of illegal tobacco products must intensify, and law enforcement agencies need to work in a coordinated manner to increase prosecution or closures of operators that decide to conduct illegal practices.”
In addition to the other measures, BATSA has called for a minimum legal retail price of ZAR28 per pack. “This is a simple way to allow the police to seize illegal cigarettes more effectively without having to prove that the manufacturer has not paid the taxes due,” says Moloto. “It could be implemented quickly through the declaration by the government of a minimum price for cigarettes. It would also help consumers to differentiate between legal and illegal products.”
South Africa’s experience proves that prohibition does not work, according to Ismail. “Illegal trade cheats everyone: governments, society, consumers and legitimate businesses,” he says. “It robs governments of tax revenues, harms hardworking retailers and invites organized crime into communities.”
Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

March 1, 2022
South Africa Proposes New Vaping Tax

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The South African government will propose a new tax on vaping products to take effect in 2023, according to Vaping360.
The move follows the government’s announcement last year that it intended to tax e-liquids.
South African Finance Minister Enoch Godongwana outlined the new tax proposal as part of a package of new and increased excise taxes on tobacco, alcohol and high-sugar products. The vaping tax will appear in the 2022 Taxation Laws Amendment Bill, though it could be changed by Parliament before the bill is finalized. It is expected to be in place by Jan. 1, 2023, according to Godongwana.
The new tax would apply to all e-liquid products, regardless of whether they include nicotine, and it would be “at least” ZAR2.90 ($0.19) per mL, essentially doubling the price of retail e-liquid. The taxation rate is supposed to be equivalent to 40 percent of the most popular brand’s retail price.
South Africa currently has no specific governance on vaping products but is working to regulate the products under its tobacco laws.
February 25, 2022
South Africa: Treasury Outlines Vapor Taxation Proposal

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South Africa’s National Treasury has outlined a proposal on the taxation of electronic nicotine-delivery systems (ENDS), reports BusinessTech.
Among other measures, the agency is considering taxes on hardware and e-liquids, with higher nicotine products attracting higher levies than low-nicotine varieties.
While the market for ENDS is still in its infancy in South Africa, the National Treasury expects it to grow. The agency says it wants to learn from the experience of other countries where growth of ENDS has raised concerns about underage consumption. The agency said it is also aware of concerns about the potential of ENDS to undermine global tobacco control efforts and public health.
Vaping products are covered neither by South Africa’s Tobacco Products Control Act nor by the country’s Medicines Act. The government has proposed the Control of Tobacco Products and Electronic Nicotine-Delivery Systems Bill in which it hopes to regulate vapor products in a similar way as cigarettes.
The bill was introduced for public comment in 2018 but remains in a draft form.
According to a 2021 study commissioned by the Vapor Products Association of SA, the vapor industry in 2019 contributed ZAR2.49 billion to South Africa’s GDP while paying ZAR710 million in taxes. More than 350,000 South Africans use vapor products.
January 4, 2022