Illicit trading has emerged as one of the most pressing issues facing South Africa, pervading various sectors of the economy and costing the nation billions in lost tax revenue.
At the forefront of this crisis are illicit cigarettes, now reaching record high levels in terms of market presence.
Research conducted by Ipsos reveals a shocking statistic: more than 76.7% of shops across the country now sell cigarettes below the minimum tax threshold applicable on a standard pack of 20.
This trend coincides with Finance Minister Enoch Godongwana's aim for the South African Revenue Service (SARS) to collect an additional R20 billion in tax revenue for the financial year, an effort aimed at circumventing new tax measures in the upcoming 2026 budget.
Johnny Moloto, Area Head of Corporate & Regulatory Affairs for BAT South Africa, stressed the urgency of the situation.
“With the clock ticking for SARS to collect at least an extra R20bn, these results from Ipsos show the need for immediate steps to plug the leaks in tobacco tax collection,” he emphasised.
Moloto further revealed that the illicit cigarette trade costs the country an estimated R28bn annually, equating to R100m lost every working day, surpassing SARS’s entire additional collection target.
“Despite increased enforcement activity over the past year, including more raids and product seizures, illicit products remain as available as ever, suggesting that current tactics are failing to address the root causes of tax evasion. Our analysis indicates that the illicit cigarette trade costs South Africa approximately R28bn annually – R100m every working day – representing more revenue than SARS’s entire additional collection target. Eliminating this leakage would protect law-abiding taxpayers from bearing additional tax burdens,” said Moloto.
While illicit cigarettes have been noted as a growing concern, the Drinks Federation of South Africa (DF-SA) released new research revealing a sharp increase in the illicit alcohol market, which has grown by 55% in volume since 2017.
Conducted by Euromonitor International, the research highlights the growing threats illegal alcohol poses to public health and safety, as well as the significant loss of national tax revenue.
“This study is a wake-up call. Communities are being exposed to harmful, unregulated alcohol, and the country is losing billions in revenue. It is urgent that government, industry, and civil society work together to tackle this issue head-on,” warned Dr Shamal Ramesar, Head of Research at DF-SA.
Ramesar urged collaboration among government, industry, and civil society to tackle this pressing issue effectively and further called for coordinated action to promote responsible consumption, shut down illegal producers, and raise public awareness regarding the inherent dangers of illicit alcohol.
Eustace Mashimbye, CEO of Proudly South African, also highlighted how the prevalence of these illegal practices is crippling the already-stressed local fashion industry.
“For the local fashion industry, illicit trade has domino effects: It leads to job losses in the value chain of the fashion industry, distorts the market by forcing local producers to compete unfairly with illicit traders who incur lower production costs, encourages widespread copyright infringements, deprives the creatives of their hard-earned revenue, compels legitimate entrepreneurs to compete with illegal traders who sell similar but substandard products without complying with safety, health or environment-related requirements, breeds precarious employment where labour regulations are disregarded, deprives the fiscus of much-needed tax revenue, and puts downward pressure on wages and salaries in the fashion industry labour market,” Mashimbye stated.
In light of these challenges, industry leaders rallied to march on behalf of the fashion sector, submitting memorandums to the Department of Trade, Industry and Competition (DTIC) and the National Clothing Retail Federation (NCRF). These memorandums were a clarion call for authorities to intensify efforts against counterfeit goods to safeguard jobs and local production.
At the Buy Local Summit and Expo, Mashimbye expressed the importance of protecting South Africa's invaluable fashion industry, estimated to be worth over $11bn (R197bn).
“We not only have a moral obligation to protect the sector; it makes economic sense to do so,” he said.
In its commitment to combat the increasing threats posed by illicit trade, SARS has reiterated its dedication to revenue collection and facilitating legitimate trade. According to the agency, the illicit economy undermines the rule of law, erodes public trust, and enacts a substantial toll on national security.
“The illicit economy is a global phenomenon that threatens South Africa’s society, economy, and national security. Tax evasion, smuggling, illegal transactions, illicit manufacturing, and fraud undermine the rule of law, erode public trust, distort markets, deprive governments of revenue, and enable corruption and organised crime. The pervasiveness of these illicit activities in our country demands that all enforcement agencies work jointly to curb their harmful practices. The illicit economy is complex and requires a whole-of-government response among public entities, the private sector, civil society, and international partners.”
SARS revealed it is working with other law enforcement agencies to combat the scourge of the illicit economy.
anita.nkonki@inl.co.za
Saturday Star