FILE PHOTO - Cigarettes are seen during manufacturing process in BAT Cigarette Factory in Bayreuth
Johannesburg - The South African economy stands to lose billions in tax revenues if British American Tobacco South Africa (BAT SA) makes good on its threat to shut down its only plant in the country.

The possibility comes in the wake of the government declaring last year that it was preparing a draft bill to introduce plain packaging of tobacco products in the country.

BAT SA’s head of external affairs in Southern Africa, Joe Heshu, said this week the company might have to close shop as the mooted regulation would have an adverse impact on the group’s financial viability.

BAT has consistently expressed its misgivings about the policy.

“When it comes to plain packaging, we have always believed that this policy is disproportionate, will not deliver its intended results and significantly erodes our intellectual property rights by stripping us of our right to use our trade marks,” the company said.

BAT SA came into being following a global merger of Rothmans International and BAT in 1999.

The company produces more than 27 billion cigarettes a year for the local and export markets.

According to SA-based consultancy firm, Quantec Research, BAT SA’s total contribution to the country’s gross domestic product in 2015 was an estimated R18.4 billion.

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The company employed more than 2100 people, bought goods and services worth R6 billion from local suppliers and generated R14.5 billion in tax revenues during the period.

Of the company’s total tax contribution, excise duties accounted for R10.2 billion, which represented 27 percent of all excise tax collected in the country.

Plain packaging of cigarettes not only restricts the use of logos, colours, brand images and promotional information on packaging, but also standardises the colours and fonts of product names, making packages less attractive.

Other countries across the world have also taken measures to enforce plain packaging.

The UK, Northern Ireland, France and Australia all passed laws that banned the branding of cigarettes packaging.

The company did not exit any of those markets after the passing of the laws.

In its 2016 Harm Reduction Focus Report, BAT acknowledged the harmful effects of cigarettes and the group said it was working at monetising less harmful tobacco products.

“We know cigarettes pose real and serious health risks and that the only way to avoid these risks is not to use them.

“But many adults continue to smoke, so working to develop and commercialise less risky products has been a strategic priority for the group,” the company said.

Earlier this year, the company said it had bought a 57.8 percent stake it did not own in Reynolds American for $49.4 billion as it looked to new-generation technology for future growth.

The group said it had invested more than $1 billion over the past five years in the development of Next Generation Products.

Another policy that BAT felt undermined its growth trajectory across the markets in which it operates was the steep increases in taxation of tobacco products.

BUSINESS REPORT