A total of 66,000 police officers’ salaries can be paid for with the money the state loses annually from income from illegal trafficking in tobacco, says a former South African Revenue Service (SARS) lawyer.
Telita Snyckers said on Wednesday at an Cape Town Press Club online event that tobacco is now the most smuggled legal product in the world.
She is the author of Dirty Tobacco: Spies, Lies and Mega-profits , which recently appeared.
In 2013, about 26% of tobacco products are estimated to have entered the country illegally, dropping to 13% after SARS actually took action, Snyckers says.
“But since the investigative capacity of SARS has been dissolved, we have seen illegal trade increase to 35% in 2018. Currently, of course, it accounts for 100% of tobacco sales during the state of containment.”
This trailing trade leads to a “phenomenal” loss of government revenue – about R7bn annually.
Snyckers says it’s not only the manufacturers of illegal tobacco products that are to blame, but also big companies.
Up to 98% of contraband tobacco comes from legal, registered manufacturers.
According to Snyckers, loads of tobacco products can be tracked and easily monitored in a variety of ways, but most companies prefer not to.
They benefit if their inventory is redirected to the illegal supply chain.
“What we see around the world is that governments are putting in place measures to track the products, so you can go back to the manufacturer and make sure where it comes from and where it’s supposed to end up.”
However, the big profits in the trafficking business serve as an incentive for the industry not to put these measures in place or to fight counterfeit trade.
In addition, governments are reluctant to take action against the industry because of the tax they earn from it and the jobs it creates.
“The amount of money you can collectively make from legitimate and illegal trading is simply astounding, which is why it makes sense for companies to try to supply both markets as well.”
Of the export tobacco declared in South Africa, up to 66% are “lost” and do not reach their destination market where it should be declared as import.
This means a lot of export tobacco is kept in the country and can be sold without paying taxes on it.
Furthermore, there is the problem that the figures on the snail trade are usually based on estimates from the tobacco industry and they have an interest in inflating those figures so that companies can argue that the government should not raise tax rates.
Snyckers also believes that there is not strong enough evidence to justify the ban on the sale of tobacco products during the state of restriction.