South Africa was losing R8 billion in 2018 to illegal cigarette companies. Photo: Bloomberg

CAPE TOWN – The slow pace of reform at the South African Revenue Service (Sars), together with February’s expected tax increases, have awarded another year of unimpeded tax fraud to illegal cigarette companies registered by Sars.

This is according to chairperson of the Tobacco Institute of Southern Africa, François van der Merwe, who said until government was able to collect taxes from those who evade paying, it should think extremely carefully about increasing taxes again on the legal market.

It is six weeks since Judge Robert Nugent recommended the appointment of a permanent Sars Commissioner as an essential first step in rebuilding Sars’s ability to collect taxes from those who don’t pay willingly. 

“In these circumstances, another tax increase would be a betrayal of the 12 000 workers whose jobs depend on the legal tobacco sector.

“Worse still, it would send a message to South Africa that the government wants to discourage the consumption of tax-paid cigarettes, but is relatively relaxed about the consumption of illegal cigarettes.

“Increasing taxes is easy, but not a solution.” said Van der Merwe. “Rather, collecting taxes from those choosing not to pay is the best place to start.”

Reached for comment a Sars spokesperson said they were studying the report and would provide comment in due course.

Ipsos South Africa on Tuesday released the results of its inaugural survey measuring the influence that brands had on South Africans, which found that South Africa was losing R8 billion in 2018 – up from R7bn in 2017 – to illegal cigarette companies. 

The #TakeBackTheTax (TBTT) Campaign called this development “a terrible indictment on Sars”.

TBTT spokesperson, Yusuf Abramjee, said in a statement on Tuesday that he was shocked by rapid growth in the illegal cigarette crisis, especially after a promised crackdown by Sars.

“We now have a situation where the biggest selling brand in South Africa, RG, is an illegal brand. That has, apparently, never happened before in any country in the world,” said Abramjee.

BUSINESS REPORT ONLINE