Tax Justice SA (TJSA) has called on the government to rethink the proposed 2% hike in Value Added Tax (VAT), stating that curbing the illicit trade of cigarettes could bring in the money needed.
On Wednesday, Finance Minister Enoch Godongwana was supposed to table the budget, but it was postponed due to parties failing to agree on the proposed 2% VAT increase.
The VAT would go up by 2% from 15% to 17%.
President Cyril Ramaphosa said the postponement of the tabling of the Budget in Parliament was the result of disagreement but also collegial and mature consensus within Cabinet that Budget proposals be worked through comprehensively and productively to secure the wellbeing of the economy and individual citizens.
According to TJSA, eliminating the rampant illicit cigarette trade would generate as much money as raising VAT by one percent.
The organisation said the proposed increase of VAT would inflict an additional financial burden on citizens already struggling to stay afloat.
“A new analysis by TJSA shows that tackling the country’s pervasive illicit cigarette trade could deliver a comparable financial windfall for the nation - without squeezing citizens further. According to official figures, each percentage point increase in VAT would have raised an extra R29 billion in 2023/24,” TJSA founder, Yusuf Abramjee said.
The organisation referred to a study conducted by Oxford Economics that found South Africa lost R27.1 billion in tax revenue due to illicit cigarettes in 2022.
It said this meant cracking down on criminal cigarette syndicates which could deliver nearly the same revenue as a VAT hike without deepening the cost-of-living crisis for millions of South Africans.
“This is a no-brainer. Why should hard-working citizens be forced to pay more tax when the government is allowing criminal networks to rob the country of billions every year?” Abramjee asked.
“Instead of punishing consumers with higher VAT, the authorities should prioritise enforcing the law and shutting down the illicit cigarette trade,” he said.
South Africa has one of the world’s largest markets for illegal cigarettes, with at least two in every three cigarettes sold evading tax, Abramjee said.
He said weak enforcement, corruption and policy failures have fuelled this shadow economy, depriving the South African Revenue Service (Sars) of vital funds needed for essential public services.
“Now is not the time to withdraw budget that has been planned for Sars. Instead, TJSA is calling on the government to intensify efforts to eradicate the illicit tobacco trade by increasing enforcement, shutting down rogue manufacturers, and invoking Sars’ legal right to install CCTV in all tobacco factories,” Abramjee said.
He said the solution was simple: enforce the law.
“If the government wants to balance the books, it should start by ensuring everyone pays their fair share of tax - especially the criminals who are profiting at the nation’s expense,” Abramjee added.
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