South Africa - Tobacco Reporter

South Africa: Illicit Products Destroyed

The Customs Division of the South African Revenue Service (SARS) has begun destroying illicit and smuggled cigarettes at the Beitbridge border post, reports SA News.

According to SARS Deputy Commissioner Johnstone Makhubu, 2,000 master cases, or 20 million cigarettes, will be destroyed.

The illicit products were seized in multi-agency and intelligence-driven operations led by Customs’ National Rapid Response Team.

“SARS has a zero-tolerance for persons or organizations that are involved in tax crime or illicit trade, and SARS will pursue them relentlessly,” said Makhubu.

Customs has put into place measures to grant benefits to compliant traders through the Accredited Economic Operator Model, according to Beyers Theron, SARS director of customs and excise. SARS is also implementing SMART border technology to increase detection capability and response.

“Since the inception of its coordinated and focused investigations Customs has been conducting over the past three years in the tobacco and cigarette industry, there has been a noticeable shift to increased cross-border smuggling using ‘runners.’ These are not individuals smuggling these cigarettes as an entrepreneurial opportunity but organized criminal syndicates exploiting the unemployed and the poor by employing individuals as runners to carry goods, often for miles, across borders,” said Theron.

“These runners carry at least two master cases of illicit cigarettes on their backs per run, often repeating these trips multiple times. These cigarettes are then loaded into trucks, small goods vehicles, cars and taxis that wait at locations along the border for distribution to their intended destinations on the local market.”

June 14, 2023

South Africa: New Tobacco Tax

Nicotine substitute solutions, including vaping products, are now subject to an excise duty of ZAR2.90 ($0.15) per mL in South Africa, effective June 1, reports Business Tech.

The forms that govern tobacco product excise have been amended to account for vaping products, according to the South African Revenue Service (SARS).

Manufacturers were required to apply for and obtain licenses from SARS for manufacturing premises before June 1, 2023, and must submit the first excise duty account by July 28, 2023.

“The tax will be detrimental to those using vaping to stop smoking as well as local small businesses—doing more harm than good,” said Kurt Yeo, co-founder of consumer group Vaping Saved My Life (VSML). “At face value, the tax will move the consumer to the intended purpose of vaping less. But with many of those who vape having switched from smoking to this safer alternative and now having to pay far more for the privilege, they might be forced to revert to smoking as a cheaper option.”

“Moreover,” said Yeo, “the excise overlooks that vaping is the most effective method for smoking cessation. So those who smoke and want to make the change will be dissuaded purely based on the price and will have to continue using the deadliest consumer product on the market, cigarettes.”

Many believe that the tax will lead to an increase in illicit products and growth of the black market, according to DFA.

“This tax is (also) going to wipe out a lot of small vaping businesses, and there is already evidence that it is promoting a black market for vaping products,” said Yeo.

June 5, 2023

BAT South Africa to Restructure Operations

BAT is looking to restructure its South African business following a drop in legal cigarette sales. The process may affect 200 jobs.

The cigarette maker attributed its predicament in part to the five-month cigarette sales ban that South Africa implemented in 2020. Intended to help prevent the spread of Covid-19, the measure was later declared unconstitutional by country’s Supreme Court.

By then, however, the damage had been done, according to BAT.

“The 2020 tobacco sales ban resulted in an explosion of growth for the illicit market. This has continued even after the ban on tobacco sales was lifted,” the company said in a statement.

In 2019, BAT South Africa permanently employed around 1,800 staff across its South African operations. Since 2020, it has been forced to retrench more than 30 percent of its workforce, the company said.

Over the same period, the company’s cigarette sales dropped by around 40 percent as the illicit market accelerated, it said.

Based on independent studies, BAT South Africa estimates that the illicit cigarette trade accounts for up to 70 percent of South Africa’s total cigarette market. This illegal trade has severely impacted the sustainability of the legal tobacco industry and is a source of funds for criminal organizations in South Africa,” BAT wrote.

The company urged for stronger enforcement and new policies to combat the illicit trade.

“While BAT South Africa applauds recent efforts by the South African Revenue Service (SARS) and law enforcement agencies to clamp down on the illicit cigarette market, it also calls for even stronger action, given that the current approach has not stopped the growth of illicit cigarettes.

“SARS has issued important new policies, but now it is time to audit manufacturer policy compliance. To support law enforcement agencies and increase their effectiveness, as well as help consumers differentiate between illicit and legal market offers, a minimum retail price policy is required.

“The illicit trade robs South Africa of billions of rands in much-needed tax revenue, and the impact of this is now clearly being seen on legitimate businesses, their operations, and, unfortunately, the livelihoods of those in their value chains. Legitimate businesses cannot operate competitively if the country’s laws are not enforced.”

BAT did not give details of how it would restructure its business or which jobs might be cut.

January 16, 2023

Illicit Trade Persists After Lockdown

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

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

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

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

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

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

Tag: South Africa