Illicit Tobacco Trade a reflection of a failing government
28 March 2024
The Democratic Alliance (DA) is committed to responsible government spending, facilitated by effective revenue collection. Recent reports on the illicit tobacco trade's substantial impact on the South African economy, costing it over a hundred billion in revenue, points to a failing government.
A study published by the University of Cape Town (UCT), found that between 2002 and 2022, due to government’s inability to secure the tobacco industry supply chain from the point of production to the point of sale, the South African economy lost approximately R119 billion in excise and VAT revenue.
The situation was further exacerbated by the government's draconian restrictions during the COVID-19 lockdowns, which, far from controlling the issue, actually provided the illegal tobacco industry with unprecedented opportunities to expand. Tax Justice South Africa's analysis reveals that in 2022 alone, the fallout from government’s mismanagement resulted in a tax revenue shortfall that exceeded R20 billion.
Compounding this failure, South Africa’s economy grew by less than estimated by National Treasury in 2023. Treasury’s overoptimistic stance is also set to roll over into this fiscal year. This means that expected revenue, already revised downward, remains overstated and even less money will be available for crucial expenditure on service delivery and social support.
Crime and corruption, industrial scale mismanagement, an inefficient public procurement framework, the energy crisis, and deployed cadres have crippled our economy. This decline is starkly illustrated by the illicit tobacco trades’ market growth which constituted a mere 5% of the market in 2006. This surged to 60% in 2021 in the wake of the lockdown’s cigarette bans. Tax Justice estimating a possible increase to between 70% and 80% in recent years.
In a thinly veiled attempt to curtail the activities of illicit tobacco mafias, government introduced the Tobacco Products and Electronic Delivery Systems Control Bill which aims to regulate the tobacco and vaping industries by regulating the sale, advertising, and packaging of products.
While the Tobacco Bill might seem well intentioned, its authoritarian, unreasonable approach is unimplementable. It also fails to address the biggest problems with tobacco use. Tobacco is a highly inelastic product, and as demonstrated during the Covid lockdowns, without eradicating the illicit tobacco trade by securing the supply chain from production to sale, the Tobacco Bill will mainly obstruct legal trade and have minimal effect on tobacco usage.
Rather than imposing hidden taxes on already overburdened South African workers, raiding the Reserve Bank's resources and prescribing asset investments to Pension Funds, a government led by the Democratic Alliance (DA) would prioritise the restoration of crime-fighting and corruption-busting agencies, which have been significantly weakened by the ANC.
The DA will continue to exert pressure on Parliament to reconsider the Tobacco Bill. It is clear that instead of unreasonable legislation, the focus must shift to the eradication of the illicit tobacco trade. Only once headway has been made in this regard, should new legislation be considered.
On the 29th of May the ANC is set to lose its majority. South Africans will have the opportunity to cast their vote for the only party capable of rescuing our economy from the ANC inspired crime syndicates that hold our country captive.
Issued by Dion George, DA Shadow Minister of Finance, 28 March 2024
