BATSA calls for illegal cigarette trade to be stubbed out

BATSA yesterday released a statement calling on the government to urgently ratify the World Health Organisation (WHO) Illicit Trade Protocol as the first step towards fighting the sale of illegal cigarettes.

Ratification means that South Africa implements the global WHO ‘track and trace’ guidelines. South Africa had the largest illegal trade in tobacco in the world and although the country was a signatory to the comprehensive international rules several years ago, this was never formally ratified.

According to the statement, BATSA confirmed that comprehensive independent research had shown ‘Fair-Trade Independent Tobacco Association’ (FITA) cigarette brands had dominated the market completely during the five-month lockdown sales ban.

The research was conducted by The Research Unit on the Economics of Excisable Products (REEP) at the University of Cape Town, under the directorship of Professor Corné van Walbeek.

Prof van Walbeek and his team reported that of the 23 000 respondents polled, 93% said they were still able to purchase cigarettes during the lockdown ban. The research also showed that brands changed dramatically and that some retail outlets had sold properly obtained and taxed cigarettes even when they were not permitted to.

According to Prof van Walbeek, BAT was hardest hit by the sales ban, and the damage to the legal cigarette industry – which previously collected and paid R35m per day in taxes – was laid bare in the REEP report.

The report showed that the market share of BATSA products had dropped from 48.0% prior to lockdown to 8.7% in June and that those who had reported being able to buy BATSA brands had obtained these from pre-lockdown retail stock.

The report also indicated that 33.7% of cigarettes bought during the ban were purchased at retail outlets including formal shops, petrol stations and spaza shops. Prior to the ban, six of the top 10 selling cigarette brands in South Africa were BATSA-owned. None of its brands currently featured on the list.

The Gold Leaf Tobacco Corporation (GLTC) brand RG was sold extensively during the lockdown period, capturing 11.6% of the market with some 10 million cigarettes sold each day at prices five times higher than before lockdown, and with no taxes being paid.

The statement added that prior to the ban, BATSA’s market share was 32 times higher than that of FITA member, Best Tobacco.  Research had shown that Best Tobacco had however overtaken BATSA in June.

BATSA warned that any aggressive increase in excise on tobacco, as had been suggested in some quarters, would only strengthen the control illegal producers had on the market.  “Tax is only paid by people and companies who obey the law.  South Africa now has a tobacco market that is controlled by people who don’t obey the law,” said BATSA’s Johnny Moloto. 

“The ban on legal sales has been the greatest gift ever for tobacco smuggling criminals.  Increasing the rate of excise which they don’t pay anyway would be the cherry on top.” BATSA added that the REEP findings were “sadly predictable”.  “Our company has not shipped a single cigarette to South African retail or wholesale customers since the ban came into effect in March. 

This is why we, previously the largest tobacco company in the country, are now barely a footnote in the REEP reports,” said Mr Moloto.  “Furthermore, we co-operate fully with SARS and have SARS officials in our facility in Heidelberg on a daily basis, controlling and monitoring production and export shipments. “Prof van Walbeek understates our feelings completely but is correct when he says in his report that ‘in contrast with the FITA members’, we have reason to be unhappy about the ban.”

And despite what Mr Moloto described as “some erroneous and malicious suggestions to the contrary”, BATSA had no outstanding tax liabilities to SARS and was fully tax compliant. SARS Commissioner Edward Kieswetter said last week that “it is going to take years to root out the corruption and illegal activities that have taken root in the past months”. “Commissioner Kieswetter’s concerns are well-founded and we remain committed to co-operating with SARS and other law-enforcement authorities to address the illicit trade and ensure a speedy return to the legal and tax-compliant trade in tobacco products,” Mr Moloto added.

BATSA launched its legal battle against the government’s decision to extend the ban on tobacco sales during Level 3 in May. Although the government had announced that the country was now at Level 2 of lockdown, a ruling from the Western Cape High Court was still expected during the course of next week. BATSA said that it had noted the decision to move to lockdown Level 2, but added that more legal clarity was needed.