Tag: South Africa

South Africa to Appeal Tobacco Ban Ruling

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The government of South Africa will appeal the Dec. 11 court ruling that declared the ban on the trade of tobacco products during the coronavirus lockdown was unnecessary and unconstitutional.
The government stated that the court erred in finding that a different but similar case involving the Fair Trade Independent Tobacco Association (Fita), which was dismissed on grounds that tobacco products were not essential, was not binding to it.
From March to August 2020, the government prohibited sales of tobacco products and alcohol to help stem the spread of the coronavirus. Market leader British American Tobacco South Africa (BATSA) and smaller companies united in the Fita challenged the ban, arguing that a short-term ban on a product whose health risks become evident only in the long run makes no sense.
They also questioned the rationale of the argument around cigarette sharing. Tobacco shortages and high prices of black-market cigarettes would only increase the likelihood of smokers sharing their “stompies,” the tobacco companies said.
The government lifted the ban before the matter had been heard in court, but BATSA decided to proceed with the court action to prevent the ban from being reintroduced at a later stage of the pandemic.
In its ruling, the Western Cape High Court judges who presided over the case said Regulation 45, which the government relied upon for the ban, “cannot and does not withstand constitutional scrutiny.”
The Fita expressed disappointment with the government’s decision to appeal.
“We feel that this step by government is regrettable given the irreparable harm on the tobacco industry along its value chain which was occasioned by the five month-long ban on the sale of cigarettes and tobacco related products for consumption by the local market, and which ban has led to the exponential and unabated growth of the illicit cigarette market, which issue has the knock-on effect of increased losses to the fiscus as less taxes are collected by the receiver,” the Fita wrote in a statement.
“This step by government is further worrisome in that it signals the potential arrival of yet another cigarette sales ban given that the pending appeal will suspend the operation of the Western Cape High Court judgment until the matter is properly ventilated before the courts, which matter could take months if not more to resolve.”
FITA previously came to an agreement with the government stating it be consulted in the case that other cigarette bans are being considered.
January 5, 2021
South Africa Tobacco Ban Unconstitutional

Photo: David Carillet – Dreamstime.com
South Africa’s ban on tobacco sales during the country’s hard lockdown earlier this year was unconstitutional, the country’s High Court ruled Dec. 11.
From March to August, the government prohibited sales of tobacco products and alcohol to help stem the spread of the coronavirus. Market leader British American Tobacco South Africa (BATSA) and smaller companies united in the Fair-trade Independent Tobacco Association (FITA) challenged the ban, arguing that a short-term ban on a product whose health risks become evident only in the long run makes no sense.
They also questioned the rationale of the argument around cigarette sharing. Tobacco shortages and high prices of black-market cigarettes would only increase the likelihood of smokers sharing their “stompies,” the tobacco companies said.
The government lifted the ban before the matter had been heard in court, but BATSA decided to proceed with the court action to prevent the ban from being reintroduced at a later stage of the pandemic.
In its ruling Friday, the Western Cape High Court judges who presided over the case said Regulation 45, which Minister Nkosazana Dlamini-Zuma relied upon for the ban, “cannot and does not withstand constitutional scrutiny.”
In court, the government had argued that the ban was aimed at reducing the occupation of intensive care unit beds by smokers. If people didn’t smoke, they would likely not get Covid-19 in a more severe form, it argued. But BATSA maintained the government had not justified the ban in law or science.
Tobacco companies expressed satisfaction with Friday’s ruling.
“British American Tobacco South Africa has been vindicated in its view that the disastrous ban on tobacco sales was unjustified and unconstitutional after the Western Cape High Court ruled in its favor,” the company wrote in a press release.
“The five-month ban on tobacco and vapor products sales was ill-considered, unlawful and has worsened the illicit trade in cigarettes and vapor products in the country.”
“We note and welcome the judgment of the full bench of the Western Cape High Court, wrote FITA in a statement.
“The court further found Regulation 45 to be neither necessary nor that it furthered the objectives set out in section 27(2) of the Disaster Management Act. This, of course, was one of the arguments advanced by FITA in its challenging of the ban on the sale of cigarettes and tobacco-related products, which the full bench of the North Gauteng High Court erred in finding same to be necessary.”
In the wake of the court ruling, BATSA also renewed its call for South Africa to urgently ratify the World Health Organization Illicit Trade Protocol to eradicate the illegal sale of cigarettes. The company stated that ratifying the protocol is “the only way for the country to claw back tax losses resulting from the explosion in illicit trade that occurred during the ban on tobacco and vapor products.”
In July, BATSA estimated that the ban on legal cigarette sales had cost South Africa ZAR4 billion ($241.7 million) in lost excise tax revenues and 30,000 lost industry jobs.
December 14, 2020
Criminals Embedded in Supply Chain After Ban

Photo: Tobacco Reporter archive
Dismantling the criminal networks that sprung up during South Africa’s ban on tobacco and alcohol sales may take years, according to Edward Kieswetter, the country’s revenue service commissioner.

The ban, aimed at managing the health impact of the Covid-19 pandemic, has allowed illegal operators to gain a foothold in the market, Kieswetter said in an online address to tax practitioners.

Having marketed themselves to previously honest smokers and drinkers during the ban, illegal and criminal operators are now embedded in the supply chain, according to Kieswetter.

Tobacco and liquor remained readily available through the black market after the ban took effect on March 27. Producers and retailers complained the restrictions have resulted in thousands of job losses and encouraged illegal trade.

National Treasury data show the government lost out on ZAR9.5 billion ($568 million) in alcohol and tobacco taxes in the first four months of the fiscal year. A 2018 report published by Tobacco Institute showed South Africa was already one of the world’s biggest markets for illicit cigarette sales at the time.

While the bans were lifted in the middle of August, shops are still only allowed to sell alcohol four days a week, and the authorities have warned they could reinstate the curbs if needed.

September 9, 2020
Fita Drops Appeal in Tobacco Ban Dispute

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The Fair-Trade Independent Tobacco Association (Fita) has dropped its bid to appeal an earlier court ruling that upheld South Africa’s temporary ban on tobacco sales.
In a statement issued on Wednesday, Fita chairman Sinenhlanhla Mnguni said the association will withdraw its pending appeal before the Supreme Court of Appeal in Bloemfontein.
The move comes after Minister of Co-operative Governance and Traditional Affairs Nkosazana Dlamini-Zuma promised to consult the public should she at any stage seek to reinstate a temporary prohibition of the sale of tobacco and related products.
Fita had criticized the government for not seeking public input when it banned tobacco sales on March 27 as part of its coronavirus lockdown. South Africa lifted its ban mid-August, but the legal action was not immediately halted.
Both parties agreed to pay their own legal expenses incurred during the tobacco ban litigation.
August 27, 2020
Call for Crackdown on Illicit Trade After Ban

Cigarette sales became in South Africa became legal again on Aug. 18
(Photo: Michael Turner | Dreamstime)
British American Tobacco South Africa (BATSA) has called on the government to urgently ratify the World Health Organization’s (WHO) illicit trade protocol. The appeal comes after the company lost a substantial share of the domestic market during the country’s coronavirus lockdown, which included a five-month ban on tobacco sales.
Research by the University of Cape Town’s Research Unit on the Economics of Excisable Products (REEP) found that 93 percent of smokers were able to purchase cigarettes during the lockdown. However, the brands they bought changed significantly.
The market share of BATSA products dropped from 48 percent prior to lockdown to 8.7 percent in June, REEP found. According to BATSA, the small share of people who reported being able to buy BATSA brands during the lockdown almost certainly obtained them out of pre-lockdown shipped retail stock.
Meanwhile, sales of cigarette brands associated with the Fair-Trade Independent Tobacco Association (Fita) increased substantially while BAT was unable to operate normally during the lockdown. Sales of Zimbabwean-owned Gold Leaf Tobacco Corp.’s RG brand, for example, exploded. At 11.6 percent of the market, this brand saw approximately 10 million cigarettes purchased every day at prices that were up to five times higher than prior to lockdown despite no tax being paid, according to BATSA.
“Our company has not shipped a single cigarette to South African retail or wholesale customers since the ban came into effect in March,” said BATSA spokesperson Johnny Moloto. “This is why we, as the previously largest tobacco company in the country are barely a footnote in the REEP reports now.”
Cigarette and tobacco product sales in South Africa became legal again on Tuesday, but South African Revenue Service Commissioner Edward Kieswetter said it would take years to root out the corruption and illegal activities that have taken root in the past four months.
The ratification of the global illicit trade protocol that BATSA demands would oblige South Africa to implement WHO track-and-trace guidelines, among other measures. South Africa signed the agreement seven years ago but never ratified it.
August 20, 2020
BAT Resumes Tobacco Sales in South Africa

Photo: Taco Tuinstra
British American Tobacco has resumed cigarette sales in South Africa after the government lifted its near five-month ban on the sale of tobacco products. The decision was announced by the South African president on Saturday as part of the government’s decision to move from lockdown level 3 to level 2.
“We are pleased with the South African government’s decision to move from lockdown level 3 to level 2 and thereby end the ban on tobacco sales,” said Luciano Comin, British American Tobacco’s (BAT) regional director of the Americas and Sub-Saharan Africa in a statement. “We have resumed out business in South Africa while continuing to await the outcome of our recent legal case.”
BAT’s South African subsidiary, the largest tobacco manufacturer in South Africa, started shipping tobacco products to trade partners on Monday, Aug. 17 with products becoming available for smokers to buy in store from Tuesday, Aug. 18.
August 19, 2020
South Africa Lifts Tobacco Ban

Photo: David Carillet – Dreamstime.com
Consumers will be able to legally purchase tobacco products in South Africa again this week, President Cyril Ramaphosa announced on Saturday.

Sales of tobacco products and alcohol have been banned since March 27 as part of a nationwide lockdown to stem spread of the coronavirus. Alcohol sales were prohibited to ease pressure on hospitals, allowing doctors in emergency wards to focus on Covid-19 rather than road accidents and other alcohol-related injuries. Tobacco products were restricted because of the health impacts of smoking as well as the risk of contamination between people sharing cigarettes.

Despite the announcement, the Fair-Trade Independent Tobacco Association (Fita), which represents seven local cigarette makers, said it would continue its legal challenge of the ban. The organization wants to prevent the government from being able to reinstate the tobacco product ban should cases of Covid-19 spike again.

Another reason for Fita to continue the case is cost. The organization’s legal challenge was initially dismissed by the High Court, but on Saturday the Supreme Court of Appeal (SCA) granted Fita permission to appeal that ruling. In its decision, the SCA temporarily set aside the costs order currently against Fita. Should Fita discontinue the case, the costs order would be reinstated, leaving the association liable for millions in legal fees.

South Africa’s tobacco sales ban has been controversial. Tobacco product manufacturers have questioned the science behind the measure, arguing that a short-term ban on a product whose health risks become evident only in the long run makes no sense. They also questioned the rationale of the argument around cigarette sharing. Tobacco shortages and high prices of black market cigarettes would only increase the likelihood of smokers sharing their “stompies,” the tobacco companies said.

A separate challenge mounted by British American Tobacco’s (BATSA) hinges on the ban’s unconstitutionality. Lawyers for the company told the Western Cape High Court that the harm caused by the ban far outweighs the benefits to the public health system. BATSA advocate Alfred Cockrell argued that the ban violates the rights of consumers and the right to free trade. He also questioned the argument that smoking could result in a severe form of Covid-19.

Fita says the ban has devastated South Africa’s tobacco sector. The association is reportedly considering seeking reparations for the millions of rand of income lost by tobacco traders during the lockdown.

Cooperative Governance and Traditional Affairs Minister Nkosazana Dlamini-Zuma accused the cigarette industry players of being motivated purely by its financial interests.
August 17, 2020
Industry Accused of Profiting from Ban

Photo: Tobacco Reporter archive
Tobacco companies have profited handsomely from South Africa’s ban on tobacco sales imposed by the government in response to the Covid-19 pandemic, according to a prominent academic.
“The behavior of the tobacco industry during the lockdown has been nothing short of disgraceful … the fact is that tobacco companies have been actively selling in the illicit market,” said Corne van Walbeek, director of the Research Unit on the Economics of Excisable Products at the University of Cape Town.

He said 90 percent of cigarettes sold since March 27, when the ban took effect, were of brands produced locally, giving the lie to the claim by industry groups that the black market was flooded with counterfeit products.

The government in May allowed cigarette companies to resume export production, and trade experts have said this gave them cover to circumvent the sales ban by exporting excess volumes that were then smuggled into the South African black market.

Van Walbeek said the Fair-Trade Independent Tobacco Association (Fita), the first tobacco group to challenge the ban in court, had increased its market share to around 60 percent during the 140-day-old ban.

“The fact that Fita instituted the court case is especially ironic in that their members have been the main beneficiaries of the sales ban,” said Van Walbeek. “Fita members have greatly increased their market share and have increased the price of their product by nearly 500 percent on average.”

August 17, 2020
When Crime Pays

Photo: Ridzani Tshivhase
Cigarette smuggling thrives in southern Africa.
By Thulani Mpofu
On May 15, 2020, South African police in northern Limpopo Province near the border with Zimbabwe impounded four vehicles and cigarettes worth ZAR1.4 million ($83,530).
The drivers, transporting cigarettes smuggled from Zimbabwe, avoided arrest by bolting out of their vehicles and out-sprinting police.
A fortnight later, four South African men and a Zimbabwean woman were arrested in the same province after a high-speed chase while attempting to spirit 10,000 boxes, or 200,000 sticks, of cigarettes into South Africa. In the last two weeks of June, 30 people were arrested resulting in the confiscation of cigarettes worth ZAR4 million.
The consignments had been smuggled through the official border post at Beitbridge, or via some 200 illegal crossing points on the Limpopo River, which forms the border between the two southern African countries.
In Botswana on April 4, police in a northern district close to Zimbabwe arrested a Motswana and a Zimbabwean for smuggling 127 cartons of cigarettes into that country.
On April 16, three men were arrested near South Africa’s border with Mozambique while transporting 20,095 packs of cigarettes worth ZAR900,000. The contraband was coming from Mozambique.
“Cigarette smuggling is a big problem for us,” South Africa Police Service Limpopo Province spokesperson Brigadier Motlafela Mojapelo told Tobacco Reporter.
“We are on alert all the time and make arrests every day, but they are undeterred. I can tell you that since March we have arrested nationals of both countries numbering at least 100. What they tell us during investigations is that the crime pays for those who avoid arrest, but our message to them and would-be smugglers is that ultimately we will catch them.”

Beitbridge Border Post (Photo: Bulawayo24)
Trafficking of cigarettes from Zimbabwe into South Africa, the biggest economy in southern Africa and the most lucrative market for both licit and illicit cigarettes in the region, is rampant. Hundreds are arrested yearly for transporting the illegally imported tobacco into South Africa as well as Namibia and Botswana. Individuals and more organized cartels whose kingpins are rarely arrested are involved.
Apart from being the main destination of trafficked cigarettes from Zimbabwe, South Africa is consistently the biggest African importer of tobacco grown in its northern neighbor. For example, in 2018, South Africa spent $100.8 million importing 32.2 million kg of tobacco from Africa’s top growing nation and the globe’s fourth-biggest producer. In that year and as in other years, South Africa’s spending and volume of imports was second to China, which imported 59.1 million kg of the leaf, worth $449.7 million.

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According to a report by the Atlantic Council of the United States, “The Illicit Tobacco Trade in Zimbabwe and South Africa: Impacts and Solutions,” released in March 2019, high taxes that South Africa, Namibia and Botswana charge on cigarette imports are the major factor discouraging legal importation of the product, encouraging smugglers to try their luck.
Members of the Southern Africa Customs Union (SACU)—South Africa, Namibia, Botswana, Eswatini and Lesotho—charge an average of ZAR16.66 in excise tax on a 20-pack of cigarettes. With a 15 percent value added tax, the total cost of the pack rises to about ZAR20. This suggests, according to an Atlantic Council study, any pack of cigarettes selling for less than the minimum collectable tax of around ZAR20 is likely smuggled or broadly illicit.
An Ipsos study whose findings were released in November 2018 established that Rudland & George cigarettes, manufactured by one of Zimbabwe’s largest tobacco-growing contractors, Gold Leaf Tobacco, had become the biggest-selling brand in South Africa overall, retailing at ZAR10 a pack.
The research estimated that illegal cigarettes accounted for 33 percent of all cigarettes sold in South Africa. The tobacco is especially prominent in the informal trade where they make up about 42 percent of that market. Due to their low prices, illegal cigarettes are an attractive bargain for smokers.
A separate research by the Tobacco Institute of South Africa (TISA) said 38 percent of the illicit sticks were smuggled from Zimbabwe, making that country pivotal for any illicit trade strategy.

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The financial prejudice of smuggled tobacco to the economies of Zimbabwe and South Africa is not accurately known, said a Harare-based tax consultant, Tendai Mavima.
“There are no records for smuggled goods, so we cannot be specific in the economic impact,” he said.
“But it is known cigarettes are being smuggled every day. Both economies suffer because if cigarettes are smuggled, it means losses in income tax, value added tax, excise duty and other taxes applicable to cigarette trade. For Zimbabwe, illegal exports in cigarettes means loss of foreign currency.”
A Japan Tobacco study released in March 2018 suggests that South Africa lost about $1.5 billion in tax revenue to illicit trade between 2010 and 2016. BAT South Africa estimates that the illegal cigarette market cost South Africa “a conservative” ZAR8 billion every year.
In its March 2019 report, the Atlantic Council of the United States said although cigarettes are smuggled from Zimbabwe into Botswana, Namibia and Mozambique, the three countries have smaller and poorer populations, leaving South Africa as the most attractive market for cigarette smugglers keen on large profits.

South Africa police stand guard over Pacific Breeze cigarettes smuggled from Zimbabwe (Photo: OperaNewsHub)
Actors are not only small-time traders who use undesignated exit points along the Limpopo River but also some “untouchables” who are well connected to the ruling elites in Zimbabwe and South Africa. Small traders typically use small vehicles to carry the contraband, but the “untouchables” carry theirs in large trucks that pass through Beitbridge Border Post where some officials are bribed to wave the vehicles across the border.
“A former smuggler claims that one of these cigarette-smuggling cartels involves politicians in the highest levels of government from both Zimbabwe and South Africa but would not divulge names,” the report says.
“This cartel is said to operate a smuggling scheme that runs from Harare to Durban. Huge trucks are used to smuggle the cigarettes from their loading points in Harare through formal border crossing points and onwards to their destination. These trucks are not stopped or searched on the Zimbabwean side of the border. The cigarette brands that are most frequently smuggled are Remington Gold and Pacific Blue, both owned by Savanna Tobacco [now known as Pacific Cigarette Company]. Beitbridge border post is a major point of entry.”
In late March 2020, South Africa banned tobacco and alcohol sales, saying consumption of both increased the risk of spread of Covid-19. The Fair Trade Independent Tobacco Association, an industry lobby group in that country, argued in a statement that the ban only worsened the black market and the smuggling of cigarettes.
Gift Mugano, a researcher at South Africa’s Nelson Mandela University, told Tobacco Reporter that individual smugglers and large companies are taking advantage of porous borders in southern Africa and poor government monitoring of their tobacco value chains. Countries, he said, lose much money in the forms of import and export taxes, excise duty and value added tax.
“Our borders in the region are porous,” he said.
“For example, there is no fence separating Zimbabwe’s border with Mozambique, the same for the border between Zimbabwe and Botswana. People, some of them smugglers, just walk or drive across. Even the formal border posts are porous because officials can be bribed.”
Echoing the Atlantic Council report, a World Bank study, “Confronting Illicit Tobacco Trade: A Global Review of Country Experiences,” which focuses on SACU, expresses concern over criminal enterprises’ close ties to leading political figures in South Africa.
“Recently, a notorious cigarette smuggler’s lavish birthday party is reported to have been attended by high-profile policemen and politicians,” said the report released in January 2019.

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“Similarly, multiple reports allege that a leading cigarette smuggler met with South Africa’s ex-president to secure a votes-for-protection agreement. All future policy and enforcement measures must reckon with the reality that, in this region, the tobacco industry is disproportionately powerful.”
The paper says government agencies in the SACU region have had little impact on illicit tobacco trade because of lack of focus, priority and resources allocated to tobacco regulation and to excise goods in general. Furthermore, they are unable to effectively secure tobacco supply chains at key points especially at production, shipment and on the retail segment. Some law enforcement agencies, the document adds, do not have nonintrusive inspection assets, such as scanners, to detect undeclared goods.
“Tobacco is like gold,” Mugano said.
“Many find it profitable to smuggle both commodities within the region and millions [of dollars] are involved. Like gold, cigarette smuggling is done by syndicates involving big companies. Those money-mongers are connected to figures in high places politically. Because of that, containing smuggling will be difficult.”
In her book Dirty Tobacco: Spies, Lies and Mega-Profits, published in June 2020, Telita Snyckers, a South African author and a tax and customs lawyer, argues that some tobacco companies smuggle their own product to evade tax. Illegally trafficked cigarettes, the book adds, are potentially more profitable than cocaine, heroin, marijuana and guns.
“The industry—even licensed, bigger players—has a long and consistent history of fines, felonies and infringements, spanning decades, across the globe,” the book reads in part.
“There is ample proof that the tobacco industry incorporated smuggling and other tax and duty evasion measures as an explicit part of its business strategy,” writes Snyckers.
August 1, 2020
BAT: Illicit Traders Have Taken Over South Africa

Photo: BAT
British American Tobacco South Africa (BATSA) declared today that the entire domestic cigarette market is now controlled by illicit suppliers. BATSA added that the nation’s lockdown of legal cigarette sales during the Covid-19 pandemic has cost the country ZAR4 billion ($241.7 million) in lost excise tax revenues and 30,000 industry jobs lost.
“With an already overstretched consumer, further increasing the cost of tobacco products will simply mean they default to the illicit market, which is now significantly cash-flush and can now afford to significantly reduce their prices,” said BATSA spokesperson Johnny Moloto.
“This means that tax-compliant manufacturers like ourselves continue to be at a disadvantage while the state is losing around ZAR35 million [$2.1 million] every single day in excise taxes.”
Moloto added, “These illicit supply chains will be so entrenched that it will be difficult for SARS (South African Revenue Service] to be able to reverse this or deal with this within a short period of time.”
July 27, 2020