Illicit cigarette trade not only costs SA billions, cheap products also increase smoking rate - REEP

The booming trade in illicit cigarettes is not only costing the fiscus billions in lost revenue every year, it's also having a hugely negative impact on public health.

At least 55-60% of cigarettes that are sold in South Africa right now are not taxed, says Corné van Walbeek, Professor at UCT's School of Economics and director of the Research Unit on the Economics of Excisable Products (REEP).

In an opinion piece for the Sunday Times, Professor Walbeek notes that the country was regarded as a global leader in tobacco control policy in the 1990s and early 2000s.

Large excise tax hikes making these products less affordable and bans on smoking in public places for instance, led to a decline in smoking rates and government revenue from tobacco taxes more than tripled

That progress has been squandered in the past 15 years, according to Walbeek.

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REEP's research shows that the money government is losing to the illegal trade has increased substantially since 2020 (remember the hard lockdown ban?).

"It's been roughly in the order of about R15 billion a year... People can now buy packs of cigarettes for R20-R30, which is very obviously not fully tax paid."

Prof. Walbeek says children are buying cigarettes at these very low prices, and smoking prevalence in South Africa is increasing.

The best estimate they have is from theGlobal Adult Tobacco Survey (GATS) of 2021 - at that point 24% of adults were smoking cigarettes specifically.

"That number is substantially higher than it was around 2010/2012 when most estimates indicated it was less than 20% - so there's been a substantial increase in smoking and we're fully confident it is because of the very large illicit market."

The vast majority of these illicit cigarettes are actually made in factories within South Africa, he says.

"They are manufactured, distributed and profited from by tobacco companies, most of which are based in SA... Why should they be allowed to profit while the fiscus and the nation’s healthcare system pay the price?"

This scenario indicates a lack of proper monitoring and enforcement of the excise taxes that should be imposed, which is another huge concern, Walbeek says.

To listen to Professor Corné van Walbeek in conversation with Stephen Grootes on 702's The Money Show, click on the audio link below: