SAPS
South Africa’s cigarette market will be studied by organised crime syndicates for decades to come as a blueprint for market capture.
“The illicit cigarette market comprised 5% of the market in 2009, peaked at 60% in 2021, and decreased to 58% in 2022,” says a new study out of the University of Cape Town.
In 2022 alone, the government lost R15 billion in excise and R3 billion in value-added tax (VAT) from these illicit sales.
From 2002 to 2020, the revenue lost to the fiscus was a staggering R110 billion. Had the South African Revenue Service (Sars) collected its fair due in 2022, it would have added another 1% in total government revenue to the actual 0.6% received.
Two events stand out:
In 2005, British American Tobacco (BAT) was reckoned to have 91% of the local tobacco market.
Other multinationals such as Philip Morris and Japan Tobacco International entered the market, followed by smaller manufacturers such as Gold Leaf Tobacco, attracted by high profits made by the incumbents.
Many of the cigarettes produced by the new entrants started selling at prices that did not even cover the cost of the excise, and that practice continues to this day.
The 60% market share captured by illicit cigarettes corresponds with recent estimates by tobacco majors such as BAT and Philip Morris, with some suggesting the black market is as high as 70%.
Expressed another way, legal cigarette sales on which taxes were paid accounted for about 14.3 billion sticks in 2022, against 19.4 billion illicit sticks.
An illicit pack of 20 cigarettes sell for anything from R15 to more than R50.
The excise on the pack is R21.77, which means anything selling for less than about R32 is probably illegal, say the authors of the report, Nicole Vellios and Corné van Walbeek.
Quite apart from the loss to the fiscus is the impact on health. Nearly 30% of South African adults are smokers – with men running at more than double the number of women – according to 2021 data from the South African Medical Research Council.
The number of smokers appears to be increasing, contrary to trends elsewhere in the world.
There is no doubt that the cheapness of cigarettes, flooded with black market products, is a key reason for the high smoking prevalence rate in SA.
More people would have quit smoking or reduced their consumption if cigarette prices had been higher, says the UCT study.
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