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SA:Excise taxes stifle the regulated tobacco business and encourage the proliferation of counterfeit cigarettes

The Fair Independent Trade Tobacco Association (Fita) voiced its concern in the wake of tax increases levied on tobacco products enacted by Finance Minister Enoch Godongwana.

In his maiden budget speech on Wednesday, Godongwana  announced that a pack of cigarettes would be increased by R1.03, while 25 grams of pipe tobacco would go up by 37 cents.

Fita chairperson, Sinenhlanhla Mnguni, said the huge excise tax on tobacco products is pushing consumers to buy illegal cigarettes and kill legitimate businesses, which is destructive to the country’s economy.

“In theory, it will be necessary to increase taxes to reduce the health burden associated with the use of these products, but the fact is fake and cheaper products are available in many different black markets. Consumer buys these items to avoid price increases of the right product due to taxable value, Mnguni said.

Although it is a well-known concept that fiscal policy cannot be separated from understanding the unexpected, its consequences are often overlooked or misunderstood, according to Mnguni.

“Currently, the legal sector of the tobacco industry is tightly regulated, but there is no protection for these establishments when criminal syndicates and some of our neighbors continue to trade illegitimately in South Africa,” Mnguni said.

He said South Africa had become a high-income country for illegal trade because taxes on neighbouring countries were levied at a lower rate.

Unfortunately, according to Mnguni, the illegal tobacco industry has grown at an alarming rate in recent years, especially after tobacco sales were banned in South Africa during the 2020 lockdown regulations.

“If this situation, aggravated by rising excise taxes on tobacco products remains unchecked, revenues from counterfeit products are likely to plummet as profit for non-compliance is higher than for legal items,” he said.

Mnguni said his association has often called on the South African Revenue Service and National Treasury to engage with neighbouring countries on enforcement issues to explore the potential for a standard rate of excise taxes on tobacco products in the Southern African Developing Communities.

“In our interactions, we ask law enforcement agencies to work with relevant ministers to strengthen our borders and protect the sovereignty of our country.

South Africa is currently seen as a playground for illegal suppliers and traders from neighbouring countries, acting with impunity, while legitimate local cigarette manufacturers are subjected to further regulations, “added Mnguni.

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