If you are paying R17.85 or less for a packet of 20 cigarettes, they are probably illicit.
This is the message from the country’s legitimate cigarette industry as billions of rands in tax revenue goes up in smoke.
And in Port Elizabeth, illicit cigarettes are being sold literally on the doorstep of a government hospital.
Market researchers from Ipsos – which earlier this year exposed SA’s unchecked, multibillion-rand illicit cigarette trade – went on a walkabout across the Bay.
Commissioned by the Tobacco Institute of South Africa (Tisa) and completed in July, the Ipsos research report showed the country was losing an estimated R600m in tax revenue every month and that an estimated R7bn is expected to have been lost by year end.
Sars, through “sin tax” laws, is entitled to R17.85 in tax for every packet of 20 cigarettes sold, meaning that each packet sold at R17.85 or less has bypassed taxation and is potentially illicit.
SA, however, is awash with packets of 20s retailing from R16 down to as little as R5 a pack – and the Eastern Cape commands a significant 8.9% of the illicit trade, trailing Gauteng’s 14%.
The investigation, led by Ipsos’s Johannesburg-based operations leader Indran Maistry and Bay-based Ipsos researcher Malibongwe Ndlaleni, started out in Central.
With no cameras allowed, the illicit trade – at independent wholesalers, semi-wholesalers, spaza shops and corner cafes, home or container stores described as “hole-in-the-wall” outlets and street vendors – was uncovered.
The first retail point surveyed proved the most startling. Less than two metres from the busy entrance to Livingstone Hospital in Korsten, street vendors were openly trading illicit cigarettes for as little as 50c.
And trade was bustling, with one trader interviewed selling just one of her five cigarette brands at a legitimate price.
The following facts emerged from the retail visits carried out from Korsten to New Brighton to Central.
● According to the Ipsos team, every spaza shop in Nelson Mandela Bay retails illicit cigarettes;
● The most commonly traded tobacco is in “loose” or single cigarettes, with each commonly trading at 50c; ● Single cigarettes at a price of 50c present a massive accessibility risk to children;
● Illicit cigarette retailers surveyed were unaware they were trading illicit products;
● In most areas illicit cigarettes outsell all legitimately priced cigarettes;
● At almost every retail point surveyed, only one brand of cigarettes was retailed at a legitimate price;
● Scores of vendors’ livelihoods are totally dependent on illicit cigarettes;
● Ipsos has identified a staggering 693 variants of cigarettes available in SA;
● SA’s top-selling cigarette, RG, is an illicit product;
● In Nelson Mandela Bay, Savanna, Caesar Gold and JFK are among the top-selling illicit brands, with Caesar Gold and JFK retailing upwards from as little as R7; and
● Taverns and shebeens have not yet been surveyed, but are in Ipsos’s sights.
“While our study was completely objective and surveyed all brands being sold to get a clear, comprehensive picture of the entire trade, we did find it concerning that the price of illicit single cigarettes presents a significant accessibility risk to children and the youth in general,” Maistry said.
He said the fact that hawkers and other retailers – who included a wide range of foreign and local traders – had no idea their products were illicit was equally concerning.
The Tobacco Institute has laid much of the blame for the situation on inadequate monitoring by Sars – which taxes cigarettes “at the factory gate” and not at retail points.
Tobacco Institute CEO Francois van der Merwe said on Friday that following July’s announcements on the trade and subsequent extensive engagement with numerous entities ranging from parliament and Sars to the police and the Hawks, Sars had now indicated that action was in the pipeline.
He said this would include new technologies to be installed at cigarette factories to ensure legitimate cigarette production and distribution.
“We have told them the bucket is leaking, it’s now leaking nearly R8bn in lost tax revenue for this year alone,” Van der Merwe said, adding that he believed the illicit trade could be arrested very quickly if Sars acted immediately.
“Unfortunately, no action has been taken on the matter by Sars or other authorities since we released the research findings in July.
“In fact, since July, the illicit cigarette market share has increased from 33% of all cigarettes sold to 42%. If this is not stopped, we could see the legitimate cigarette trade gone in two years,” he said.