Calls by the Congress of South African Trade Unions (Cosatu) for government to raise excise on tobacco products by 100% has well and truly irked the Fair Trade Independent Tobacco Association (Fita), who said on Wednesday 29 October that such a discussion “cannot even begin to be had” with illegal cigarettes continuing to be smuggled in to the country unabated.
While Finance Minster Tito Mboweni resisted the calls in his mid-term budget policy statement delivered to Parliament on Wednesday, Cosatu remain insistent that the price of cigarettes be hiked in order to reduce “excessive consumption of tobacco”.
Cosatu call for 100% tax hike on tobacco
Cosatu parliamentary organiser Matthew Parks said on Wednesday that the trade union “supports measures that seek to reduce the excessive consumption of tobacco, especially amongst young people and pregnant mothers”, and urged government to take immediate action to snub out smoker’s ciggies across the country.
But Fita’s chairperson Sinenhlanhla Mnguni said that such calls are downright insane.
“It is quite mind-boggling that there are sections of society pushing government to increase excise on cigarettes,” he said. “Such a move would be nothing short of disastrous for both the fiscus and the legitimate tobacco industry and thousands of people along its value chain.”
He cited the rampant influx of illicit cigarettes from neighbouring countries through “porous borders” into South Africa and the challenges that face border security officials as highly concerning, and said that by raising the price of legitimate cigarettes and driving consumers to illicit markets, this would only get worse.
Fita dismiss calls as laughable
He said that the South African cigarette market has over the last few years seen a significant shift from one where consumers are brand conscious to one where consumers nows seek the best-priced smokes.
“Implementation of the policies mooted by the likes of Cosatu will create an even bigger demand for the cheaper cigarettes, with an overwhelming majority of such products likely to come from non-compliant sources who do not contribute to the state coffers,” he said, adding that the lockdown demonstrated clearly that smokers aren’t afraid of engaging in illegal makers.
“As evidenced by what was witnessed during the lockdown period, increasing excise tax on cigarettes substantially will only serve to encourage those who ply their trade in the illicit economy, in which criminal syndicates have over the years significantly improved their networks and resources to a point where law enforcement agencies are currently unable to tackle them,” he said.
“We therefore cannot even begin to have such a discussion such as the one pushed by Cosatu and the like without rigorous inter alia strengthening capacity within law enforcement agencies.”
Research indicates availability of illegal products
Tax Justice South Africa founder Yusuf Abramjee agreed that the prospect of such a dramatic hike would only serve as detrimental to crime fighting efforts.
“A significant increase in tobacco excise taxes would fuel the illicit trade and ending up losing tax revenue desperately needed by the South African people,” he said. “The lockdown sales ban proved there are plenty of criminals willing and able to supply cigarettes outside the legal, taxpaying system.”
“Independent research by the University of Cape Town showed that more than 90% of smokers were able to buy tobacco products during the prohibition, when more than R5 billion was lost in tobacco excise taxes alone.”
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