Tobacco industry using state capture era tactics – former Sars boss

Rivalry in the South African cigarette industry has regressed to the tactics of the so-called state capture era, says former tax boss Johan van Loggerenberg.

The mud-slinging between the Fair-trade Independent Tobacco Association (FITA) and British American Tobacco’s (BAT’s) South African subsidiary Batsa appears to have been brought on by a volatile market in the Covid-19 period which has culminated in an all-out price war between smaller independent cigarette brands and the multinationals.

Also Read: FITA welcomes tobacco ruling, bemoans surge in illicit cigarette trade

But lessons should be learned from when rivals came to blows during the 2013-14 period during which intensified investigations by the South African Revenue Service (Sars) were mired in scandal. This time around, warns Loggerenberg, industry players have to admit they all have contributed to the malaise in the industry and a clean slate is in order, if all parties can agree to fix the rot in the sector.

“Covid-19 and the banning of cigarette sales brought a whole new dynamic that altered the market significantly. The point I’m trying to make is for me what I am beginning to see again is where were in 2013-14 where it becomes a finger-pointing bickering exercise of local vs multinational and small vs big,” says Van Loggerenberg

He also said FITA chairperson Sinenhlanhla Mnguni was correct in asserting that focusing on only certain types of wrongdoing in the industry was not helpful.

Also Read: BATSA, Fita trade blows over cigarette prices

“What you need to do is look at the entire value chain. The difficulty that I have with the BAT approach is that they over-emphasise illicit manufacturing and smuggling and it’s as if that’s the only problem. It’s not. The FITA guys tend to overemphasise particular activities where the particular multinationals were caught with their pants down in response, which is also in a sense not helpful.”

Smuggling and illicit manufacturing are major blows to the state coffers, Van Loggerenberg argues, but so are illicit financial flows, of which multinationals are the most guilty. Non-permissible profit shifting, he adds, costs the state billions in lost revenue.

“All parties need to own up to what happened in the past, accept it, regularise it and if things are wrong fix it, wipe the slate clean and start again as a group. It is not in the country’s interest to focus only on smuggling and illicit trade and not on impermissible profit shifting for instance. The practice moves billions of rands offshore annually and those are multinationals that do that, not the locals.”

Last week, Batsa released a report detailing “industrial scale” tax evasion by local manufacturers with the help of retailers.

The report compiled by data company Ipsos found that 75% of the brands in more than 4,000 stores across the country were being sold at prices lower than the Minimum Collectible Tax (MCT) of R21.61.

This was followed by a searing statement from FITA calling for Batsa to account for atrocities the company had been linked to through the activities of its mother company in West Africa.

Simnikiweh@citizen.co.za