FILE - This is a Monday, July 24, 2017 file photo of the logo for British American Tobacco appears above a trading post on the floor of the New York Stock Exchange. British American Tobacco South Africa is concerned that the 8.5% increase in tobacco products will spike an increase in the illegal market. (AP Photo/Richard Drew/File)

CAPE TOWN - Sin tax such as tobacco products are set to see a 8.5% increase in excise duty which is well above inflation. 

British American Tobacco South Africa (BATSA) is concerned about this and says it may spike an increase in the illegal market. According to Head of External Affairs at (BATSA), Joe Heshu said that BATSA is concerned about the impact of the increase in tobacco excise tax, which is well above inflation, currently at 4.4%. 

He noted a similar above inflation hike in the previous Budget, which resulted in a decline in excise revenue collections. He says that the rise in six tax may well have a negative impact on the economy and influence the illegal market. 

“Drastically raising taxes on legally produced cigarettes simply makes illicit products that evade tax even cheaper by comparison, and contributes to the growth of the illegal market”, said Heshu. 

“We expect the increase in tobacco excise tax announced by the minister to further stimulate the illicit trade in tobacco, which already results in a loss to the revenue of about R7 billion over the last four years”. 

Heshu added that the effort to make legal products unaffordable is driving consumers towards cigarettes that are not legal because they are not declared to the tax authorities.

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The Head of External Affairs added that the Finance Minister, Malusi Gigaba could generate far more revenue by enforcing taxes on the illicit trade. 

“We understand the fiscal constraints the Minister had to address, but we believe he could bring in far more revenue than this increase will deliver, simply by enforcing existing taxes on the illicit trade thus broadening the tax base”, said Heshu. 

When asked whether the predicted R1.3 billion from excise duty for alcohol and tobacco is hopeful for the country’s revenue, Heshu said that the additional revenue of R420 million is expected from tobacco products. 

However, he said it is not certain whether the South African Revenue Service (Sars) will collect the additional revenue of R420 million. 

“In the absence of any additional enforcement measures, it isn’t certain that SARS will actually collect the additional R420 million, for the simple reason that the illicit tobacco industry is displacing their products at an accelerating rate. As the legal sector shrinks, it contributes less tax, while the illicit sector grows, and so does the amount of tax that goes uncollected as a result”, said Heshu. 

On the country’s current credit ratings status and government’s efforts to cut R85 billion in expenditure over the next 3 years, Heshu said that “BATSA fully supports the government in its efforts to rectify fiscal imbalances, reignite growth and avoid a ratings downgrade”. 

“On the whole, we believe this Budget was a credible attempt to control spending and close the fiscal gap, which sends the right signals to investors and ratings agencies”, concluded Heshu. 

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- BUSINESS REPORT ONLINE