AP

In this Sunday, Nov. 20, 2011 photo, cigarettes made by a customer lie next to loose tobacco at Island Smokes in New York. There is no place in the U.S. where it costs more to smoke than New York City, where the state and local taxes alone will set you back $6.46 per pack. Yet, smokers who visit Island Smokes, a "roll-your-own" tobacco shop in Manhattan's Chinatown, can walk out with an entire carton of cigarettes for an advertised price of $39.95, thanks to a tax loophole that officials in several states are now trying to close. (AP Photo/Seth Wenig)

An increase in the cost of tobacco products falls within “reasonable levels”, British American Tobacco SA said shortly after Finance Minister Pravin Gordhan tabled the 2012/2013 Budget.

“For us (this) is an acknowledgement by government of the significant problem of the illegal trade in cigarettes,” spokeswoman Leslie Rance said.

“This is also to blame for the approximately R4 billion loss in government revenue due to evasion of taxes on illegal cigarettes.”

Rance said trade in illegal cigarettes remained a major concern in South Africa.

“Around 28 percent of cigarettes sold in South Africa are illegal.”

The Tobacco Institute of Southern Africa voiced similar sentiment and commended Gordhan for maintaining a stable rate on tobacco products.

“Although the excise was increased by 58 cents per packet of 20

cigarettes, it was done to maintain the 52 percent tax incidence on tobacco products in line with current government policy,” the institute's chief executive Francois van der Merwe said.

“By maintaining a stable excise rate... government has clearly demonstrated its understanding of the relationship between high taxes and the growth in illicit trade.”

He said this was also a clear indication of the government's attempts to stop illicit trade in tobacco products.

“Independent research estimates that in 2011, a staggering seven to 7.5 billion cigarettes were sold illegally in South Africa, up from six billion in 2010.”

This far exceeded the global average. More than 80 percent of the illegal cigarettes sold in South Africa were smuggled across the border from Zimbabwe without the payment of the applicable duties, Van der Merwe said.

The government lost almost R4 billion in unpaid taxes due to the illegal trade in cigarettes in 2011, and more than R3 billion in 2010. - Sapa