The latest tobacco market study from Ipsos shows not only a dramatic increase in the trade of illegal cigarettes in South Africa, but that the RG brand, by Gold Leaf Tobacco, is now the top-selling brand in the country overall.
RG has overtaken all legal brands, giving South Africa the dubious honour of being the first country in the world with an illegal cigarette brand as its top seller.
Illegal cigarettes are favoured for their low price, with RG selling for, on average, R10. The South African Revenue Service (Sars) is meant to earn R17.85 from every box of cigarette sold in South Africa, meaning any brand sold for less than that amount is clearly not paying the tax, making it illegal according to a 2015 judgment.
These cigarettes have grown to occupy 42% of the informal market, showing an increase in market share of over 25% in just three months.
Ipsos found that Gold Leaf Tobacco represents 73% of the national market for illegal cigarettes, adding that in a “remarkable show of defiance”, the company has expanded its distribution at the same time as Sars attempts to crackdown on its trading in illegal cigarettes. The study further found, that, by dodging tax, the company is on track to become the biggest in South Africa.
Earlier this month, the Nugent Commission of Inquiry found that “those who trade illicitly in commodities like tobacco operate with little constraint”.
Tobacco Institute of South Africa (TISA) chairman François van der Merwe said: “Until government is able to collect taxes from those who evade paying, it should think extremely carefully about increasing taxes again on the legal market.
“In these circumstances, another tax increase would be a betrayal of the 12,000 workers whose jobs depend on the legal tobacco sector.
“Worse still, it would send a message to South Africa that the government wants to discourage the consumption of tax-paid cigarettes, but is relatively relaxed about the consumption of illegal cigarettes.
“Increasing taxes is easy, but not a solution,” said Van der Merwe. “Rather, collecting taxes from those choosing not to pay is the best place to start.”
(Compiled by Daniel Friedman)