A new study attributing the loss of R7 billion to the fiscus through the illicit trade of tobacco and cigarettes at the feet of smaller tobacco companies is only telling half the tale.
The Ipsos report commissioned and released yesterday by the Tobacco Industry of South Africa (Tisa) states that illegal cigarettes costing as little as R5 per pack are available for sale in more than 100 000 shops in South Africa, and more than one-third of cigarettes in ‘non-organised’ shops – which account for almost 80% of all tobacco sales – are being sold for well below the government’s R17.85 minimum in tax payable.
According to Tisa, the “legal” tobacco industry is worth, through excise and VAT on excise, more than R16 billion to government.
It also showed how the illegal market exploded since Sars’ now suspended commissioner Tom Moyane ordered investigations and the inspection of cigarette factories be stopped in 2015.
Which is where the dots finally begin to connect, with British American Tobacco SA’s (BatSA’s) massive disinformation campaign that initially created the conditions for the illicit trade in tobacco products to flourish. Its attempt to corner more of the pie collapsed Sars’ investigative ability and has now spectacularly backfired – to the tune of R7 billion.
It was in late 2014 that the Sars “rogue unit” narrative began, with honeypot triple spy Belinda Walter (Carnilinx, BatSA, State Security Agency) outing Sars group executive Johan van Loggerenberg as head of the High Risk Intervention Unit at Sars and gaining steam and notoriety through 2015 and beyond.
Then Sars commissioner Oupa Magashula was speedily bundled out after his offer of a R700 000-a-year job at Sars to a 28-year-old female chartered accountant. Ivan Pillay was appointed in his place.
Moyane was appointed commissioner in September 2014 and, when in October of the same year the rogue unit stories began to flow, fed by Walter and disgruntled Sars operative Mike Peega – who was arrested for rhino poaching and subsequently disowned by Sars – it wasn’t long before a panicked Moyane hung Pillay, Van Loggerenberg, and Pete Richer out to dry.
There’s no evidence to suggest Moyane – appointed by then president Jacob Zuma – was anything other than a vicious patsy armed with a few well-aimed suggestions in his ear.
All that had to happen was for stories, each wilder than the next, to be swallowed by the Sunday Times to feed Moyane’s paranoia, culminating in last week’s first round of the judicial commission into how the restructuring at Sars virtually collapsed the entity’s ability to counter illicit trade in just about everything.
Whether Moyane did this knowingly or was simply clueless is for the Nugent commission to uncover.
Around 1999 about 27% of total adults in South Africa smoked. Tisa members occupied about 80% of the share of this market. By 2015, the total number of adult smokers was around 11% of the population and, by this time, the Gold Leaf Tobacco Company (GLTC), Folha, Carnilinx, UATM, Savannah and ATM had entered the market and were beginning to offer cheaper brands.
The collapse of the base of smokers from from 4.6 million to about 2.7 million meant Tisa members lost massive market share, with BatSA losing the lion’s share.
Tisa chairman Francois van der Merwe would not comment on the points made above, and a BatSA representative ducked a promised one-on-one interview, electing through an organiser to respond via email.
At the time of going to print, this had not transpired, nor had a response from GLTC, fingered by Van der Merwe as responsible for 75% of the illegal trade in the country.
There’s the other side the Ipsos report could not cover – aggressive base erosion practices and profit shifting schemes (Beps), as well as industrial espionage, all allowed to flourish in the absence of an incorruptible, dedicated investigative unit at Sars.
“Beps refers to tax avoidance strategies that exploit gaps and mismatches in tax rules and treaties of different countries in order to artificially shift profits to low or no-tax locations,” explained the Fair-trade Independent Tobacco Association (Fita) said in a statement.
“The intended consequence of Beps is that multinationals end up paying little or no corporate income tax in any country.”
Fita also stated there was more than sufficient evidence in South Africa that pointed to BatSA and its “inordinate influence over law enforcement officials”.
“British American Tobacco supposedly appointed law firm Norton Rose Fulbright to ‘investigate’ these allegations in South Africa as far back as 2016. They also appointed law firm Slaughter & May to do the same in other parts of Africa and elsewhere,” Fita said.
“Yet their reports and findings have remained under wraps and away from public scrutiny despite several requests for the release thereof. Because of their proximity to senior law enforcement officials and their close relations, none of these allegations appears to have ever been investigated and prosecuted by our law enforcement agencies. This must be questioned.”