I spent many years working in the tobacco industry and know it like the back of my hand. The minimum collectible tax on a single packet of cigarettes is R27.12 which makes up roughly 45% of the selling price which I believe is R60 today. The R27.12 is made up of a R23.58c excise tax duty and R3.54 VAT which is the value added tax.
The graph above is quite staggering showing how an industry is being targeted by criminal syndicates which will include government ministers. Prior to when South Africa had the Covid lockdowns back in 2020 the illicit trade with cigarettes was around 20%. The lockdowns which saw a ban on all cigarette sales by the Department of Health (Zuma's ex wife as Health Minister) was the catalyst to send illicit trade over 60%.
This was all planned and intentional as the Zuma sons were caught selling goods on the black market. These goods were legitimate brands so were not the made up brands we see flooding the market today.
When you have cigarettes selling as low as R7 per pack then you have a major problem knowing the minimum price would be R27.12 if all duties and taxes have been paid. This would not be the selling price as this would not cover the costs of manufacturing plus the retailers mark up.
Excise duties have an annual increase linked to inflation which is music to an illicit trade manufacturer as their profits rise accordingly. The cheapest illicit cigarette in SA is R5 per pack and the cheapest legal duty paid packet is R37. The tax man/receiver says they have a plan to tackle this from March next year and you wonder why not immediately.
Best Tobacco a cigarette manufacturer established in late 2014 now accounts for more than 30 percent of sales below R10 per pack. Best Tobacco is a local manufacturer and not an importer from what I can tell.
100% compliant they are not with their sales only based on price and nothing else. I know how hard it is launching any brand into a competitive market and an unknown will have none or zero sales unless they have a price edge. A basic audit on the tonnage of tobacco used will reflect the number of cigarette packets made multiplied by R27.12 will tell a story as the business would be broke overnight. This can go for all the other cigarette companies within SA's borders because all the illicit manufacturers will be found out very quickly.
Unfortunately a common sense audit will never happen for one simple reason as these manufacturers are protected by the corrupt ministers involved. There is probably a handful of people in the country who know how to fix the illicit trade and it is rather simple when you know how.
The tax man is saying they are losing R30 billion per year in lost duties which is an understated figure because they actually have no idea how much they are losing which is costing the country directly impacting the revenue collected.
The latest suggestion is to reduce the taxes by 50% which would definitely see an uptick in revenue collected because those involved in the illicit trade cannot counter this. I would go as far as removing 80% because this would still generate even more revenue. If you are getting so little then you may as well give back more to at least double those figures. This will never be applied for a number of reasons with those in government struggling with basic mathematics and they know it would impact those who are corrupt. They all know who is involved, but if they reveal who they are whatever illegal things they are doing will also be exposed. This is like a Band of Brothers protecting each other and why unemployment is so high with the economy and infrastructure struggling due to no revenue available to reinvest.