BAT to Take on R6.3bn Illegal Cigarette Trade

Source from:  Business Day 12/14/2010

The trade of illegal cigarettes has spiked in the last 18 months. The spike has been linked to the global economic slump. British American Tobacco has launched a campaign against these cigarettes. BAT is seeking to inform buyers and sellers of the wider impact of illegal transactions. BAT first started seeing the illicit cigarette trade in 2004. In the past 18 months there's been a marked increase in volumes that SARS estimates is now around R6.3bn annually. This equates to 750,000 packs or 15 million single sticks per day. It is estimated that one in four cigarettes in South Africa today is illegal. "Consumers have less disposable income and are looking for less expensive ways of buying products. It's also availability - it's been coming across from Zimbabwe where more than 80% of what we are seeing is being manufactured in Zimbabwe," British American Tobacco's Corporate and Regulatory Affairs Director, Fay Kajee told Summit TV. The SA Revenue Services and the police have done work tightening border controls to stem the flow into the country. They've had success with seizing cigarettes and tighter controls but the criminals have also become more innovative. "This is not product being manufactured in back rooms - this is organised crime and it's linked to other organised crime around the world. It's crime that fuels the arms and the drugs trades and other bigger social crimes," said Kajee. "52% of a pack of cigarettes goes to tax in excise and VAT and that's set by SARS on an annual basis so the large portion of what you pay goes to the government. The rest goes into manufacturing costs and so on. That's why these illegal cigarettes are available at such low prices - because no tax is being paid. SARS estimates if you are buying a pack of cigarettes for less than R13.50 that's the rock bottom price - you are basically giving it away. That's the tax. That's the cheapest you can manufacture and get it to the retailer - that's a virtual give-away price from the retailer. If anyone is buying a pack of cigarettes for less than R13.50 they should be suspicious," Kajee added. The taxes are set high because cigarettes are a risky product and governments all around the world have decided one way of controlling consumption is through price and tax. The campaign has gone out to 20,000 outlets nationally asking retailers to pledge not to sell illegal cigarettes under the auspices of the Tobacco Institute of South Africa. There's also a leaflet for anyone else that's interested informing them of the penalties and how to spot an illegal product. "It's not just price - that's the first clue - there are other elements that relate to packaging and non-compliance," said Kajee. It is an above-the-line campaign targeted at Gauteng where there's the greatest prevalence at 50% and the Western Cape at 29%. It is a hard-hitting campaign that looks at the organised crime aspect. Enditem taxes.