The fact that almost 60% of retailers in South Africa sampled in the Ipsos research released last week were selling cigarettes below the tax-compliant price point of R25.05 for a pack of 20 was devastating news for the legal South African tobacco industry.
"This is according to the South Africa Tobacco Transformation Alliance (Satta), which has amplified the recent Ipsos market research on cigarette pricing, and its implications for the legal producers of cigarettes."
This comes after Ipsos last week released a report indicating that close to 60% sampled South African stores were selling illicit tobacco products, with prices as low as R5 for a pack of 20 cigarettes – intensifying the ongoing price war among illicit cigarette manufacturers.
Satta yesterday said the fact that almost 60% of retailers sampled by Ipsos were selling cigarettes below the tax-compliant price point of R25.05 for a pack of 20 was devastating news for the legal SA tobacco industry.
Satta spokesperson Francois van der Merwe said the research provided compelling new information about the increasing availability of non-taxed cigarettes and the ongoing growth of the illicit tobacco sector.
“It is just not possible to be tax-compliant and still sell a packet of 20 cigarettes at these low prices, given that the Minimum Collectible Tax (MCT) alone on these packets is R25.05,” he said.
“In fact, recent research commissioned by Satta as well as independent research from the University of Cape Town, shows that the minimum price at which a legal pack of 20 cigarettes can be sold is around R32.”
Satta said these recent findings from Ipsos should increase concerns about the future of the legal industry, and what it meant for consumers and the national fiscus.
It said it believed the country was close to the point where the legal industry was completely pushed out of the market and could collapse, leaving criminal networks completely in charge of cigarette manufacturing and sales.
“That means no excise or VAT revenue from cigarettes for Sars. No contribution to the national fiscus. No work or income for people in the legal tobacco industry. And no access to legal products for South African consumers. The criminals will have won,” Van Der Merwe said.
Satta called on all these manufacturers to explain to the SA Revenue Service (Sars) and the public at large, exactly how they were able to grow tobacco, process it, manufacture cigarettes and distribute them, and pay excise tax and VAT, while the price of its products did not even cover the cost of excise tax and VAT.
Van Der Merwe added that the situation was dire and needed urgent government attention and drastic interventions.
“National Treasury needs to step up to the plate and make more resources available to Sars. Without a change to the status quo, the legal industry will soon disappear from South Africa and the country will be one step closer to becoming a fully blown gangster state,” he said.
According to the the Impact of the Tobacco Industry In South Africa report published last year, the tobacco industry makes a substantial R48.4 billion gross value added contribution to SA’s economic growth.
However, the industry, mainly the duty-paying or licit segment had struggled to regain its pre-pandemic economic contribution due to the sustained growth in the illicit cigarette trade.