Johannesburg - The Tobacco Institute of Southern Africa (TISA) has warned that a rushed new system for tracking cigarettes would see a multi-billion rand tender awarded to a monopoly yet may fail to curb the R8 billion illegal cigarette trade.
The “track-and-trace marker technology” issued by the South African Revenue Service (SARS) would not address the main problem of illegal tobacco trade, which was cigarette volume verification at point of manufacture, according to TISA.
In April, SARS announced that it had embarked on several strategic initiatives to curb the country's illegal tobacco trade.
TISA chairman, François van der Merwe, said the new system was originally conceptualised under the watch of Tom Moyane while he was SARS commissioner.
SARS issued a request for proposals on 26 April 2019, with a deadline of 20 June, for bidders to submit proposals for the appointment of a single service provider.
Van der Merwe said SARS would then attempt to implement a system in 12 months that has taken the EU and Ghana more than four years of consultation and trials to achieve.
He said SARS intended to appoint a single service provider for an unprecedented eight years to implement a system that would impact on wholesalers, retailers, distributors and manufacturers, at significant cost and without consulting the value chain stakeholders.
The contract would be worth billions of rands to the winning bidder.
SARS lost more than R8 billion last year due to volumes not declared, according to TISA.
Any new system should primarily focus on addressing the main problem, which was volume verification through digital technology at the point of manufacture, said TISA.
Van der Merwe said they were supporting track and trace systems which would address the most profitable aspect of the illicit trade and would ensure the legal tobacco sector makes inroads into one of the world’s worst illegal markets.
"These are complex, hi-tech systems that must be able to plug into the existing, as well as future technology used by SARS, retailers, wholesalers and manufacturers so data can be shared in real time.
"Rolling out such a sophisticated, IT-intensive system requires enough time for preparation, consultation and testing and TISA is concerned that the rushed process being followed by SARS has skipped these critical steps," he said.
"It will impose excessive and impractical regulatory burdens on small retailers when the real problem lies with local manufacturers who are evading taxes. This will only encourage retailers to sell illegal products because they won’t be able to cover the compliance costs of receiving legal cigarettes."
Eighty per cent of cigarettes were retailed by small informal shops that were not equipped for the new rules and would be forced out of the legal trade as a result, van der Merwe said.
The system specified in the tender would capture only the legal market and could drive illicit trade up further, said TISA.