South Africa has become one of the world’s biggest markets for illicit cigarette sales and is losing about R7 billion ($510 million) a year through related tax evasion, according to a report published by the country’s producer-funded Tobacco Institute.
While Africa’s most industrialised economy has long struggled to prevent cigarettes being smuggled from neighbouring Zimbabwe, domestic manufacturers are now increasing production, according to Tobacco Institute Chairman Francois Van der Merwe. They then sell packets through informal convenience stores, known as spaza shops, at below the minimum tax rate charged by the South African Revenue Service, he said.
“Taxes of at least R17.85 have to be paid on every pack of cigarettes in South Africa,” Van der Merwe said in an interview ahead of the report’s publication Thursday. “Meanwhile, smokers can pick up cigarettes for as little as R5 for 20 sticks, which clearly shows that taxes are not being paid.”
More than 75% of the cut-price cigarettes are made by Gold Leaf Tobacco Corp., according to the report. Its RG brand, the second-most popular in the country behind British American Tobacco’s Peter Stuyvesant, is selling at an average of R10.50 a pack, said Van der Merwe.
“Most, if not all of the allegations concerning our client which our client’s competitor has spread are false,” Raees Saint, the company’s attorney, said in an emailed statement.
BAT, the largest cigarette maker operating in South Africa and a member of the Tobacco Institute, says it pays around R20 in taxes per packet and has been cutting jobs as the London-based company struggles to deal with the rogue competition.
“The problem is significant in terms of how readily available these illegal cigarettes are,” Ronan Barry, BAT’s head of legal affairs, said in the same interview.
The company’s manufacturing plant south of Johannesburg is operating below 50% capacity and “almost 400 jobs have been lost at the factory alone since 2014 due to the growth in illicit trade,” he said.