Illicit trade: SA economy loses R100 billion annually

Business Unity South Africa (Busa) presented the Transnational Alliance to Combat Illicit Trade (Tracit) Organised Crime, Corruption and Illicit Trade: Spotlight on South Africa report at an event yesterday.

Illicit trade includes illicit alcohol, illicit tobacco, fishing, wildlife trafficking, illegal mining, counterfeit goods, substandard and falsified medicines, illicit trade in fuel, food and apparel.

Report

The report states that the SA Revenue Service estimated the cost to the economy to be R100 billion every year. Busa estimated SA loses about R250 million a day, and the Organisation for Economic Co-operation and Development estimated that 1% of GDP is lost to illicit financial flows.

Tracit commissioned the Global Illicit Trade Environment Index which ranked SA at 42 out of 84 countries. SA’s illicit economy is fed by inflation, unemployment, corruption and the lasting effects of the Covid pandemic.

Tracit cautioned that crisis regulations can drive illicit trade. Dr Esteban Giudici, senior policy advisor for Tracit, noted that “there is a lack of awareness at every level” and that illicit trade has clear links to terrorist financing, human trafficking and money laundering.

He said illicit trade is an unregistered economy that does not pay tax and undermines sustainable development.

He also warned that free trade zones are Gareth Newham, of the Institute for Security Studies, said an information-sharing platform should be set up to enhance capability.

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Recommendations

The report’s recommendations include strengthening cooperation with neighbouring countries to address informal cross-border trade, smuggling and alignment of tax and subsidy policies; strengthening criminal penalties; tightening controls on money laundering; applying international law enforcement and customs cooperation; improving border controls and avoiding the imposition of “emergency tax” increases on products vulnerable to illicit trade such as tobacco.

Philip Morris SA said: “If SA’s illicit trade is dealt with in swift and necessary actions our monitoring by the Financial Action Task Force will be seen in a more favourable light and could eventually see SA go off the greylist.”

READ MORE: More action against illicit trade needed – Tax Justice SA