The sale of illicit tobacco products is affecting gross total of the legitimate manufacturers.
A jump in illicit tobacco products imports in South Africa over the past 18 months is decreasing sales by legal manufacturers and under the influence of British American Tobacco (BAT) is funding an information campaign which will underline the correlation between illicit tobacco products and organized underworld.
"The sale of illicit tobacco products caused an increasing concern due to its link to arms trafficking. It is not just about the influence on legitime volumes, gains and tax proceeds," stated, Fay Kajee director of the corporate and regulatory affairs of the BAT South Africa. But the influence on legal sales was essential. Kajee stated that the campaign, which is costing it R8.5 million, was also directed at protection of the share of the market. BAT has approximately 85.7 % share of legitimate cigarette markets in South Africa.
"We have faced volumes decrease as sales of illicit trade have increased to about 20% of all sales. This corresponds to the international norm of 6% to 12%."
For the past three years sales of legal tobacco products have decreased from 25 billion cigarettes in 2008 to 21 billion this year. Within the same period the sale of illicit tobacco products has increased from 3 billion in 2008 to 6.3 billion this year.
Thus it can be estimated that one in five cigarettes is illicit.
The calculated annual earnings loss to the government constituted R2.5 billion in delinquent taxes more than half of the cost of the package of cigarettes goes to excise duties and on value-added tax. Legal sales of cigarettes by the tobacco manufacturers produce about R10bn profit for the government.
"The loss in profit from illicit sales was about R1bn. Illicit tobacco products are very profitable as they are light and can be quickly distributed," stated Adrian Lackay, the spokesman for the SA Revenue Service.
Kajee attached the increase in the sale of illegal tobacco products to the occasion, and namely the fact that supplies from Zimbabwe might be run into the country easily, without taking into account the government’s efforts. Financial pressure on consumers has also lead to big demand for cheap tobacco products.
"Illegal tobacco products were predominant where there was a significant demand for cheap products, it was not only street vendors who sold them, but also different retailers, bars and other establishments," Kajee said.
Illicit tobacco products are considered those which are brought into the country as contraband in order to avoid tax. Any tobacco products which are sold for less than R13.50 for a package should put on guard.