TAX evasion, money laundering, and interference in the policies and regulations of the land have grown the tobacco industry in South Africa to an estimated $886.09 billion (about R6.3 trillion) industry, and it is growing by the day.
The failure by the government to stop them, coupled with backhanded tactics, is said to allow the industry to thrive, with an estimated growth at a projection of 6.67% per annum.
This as tobacco remains legal in the land, despite evidence both by national and international organisations that it is one of the biggest threats to the health of users and second-hand smokers.
Tobacco, according to those who have continued to wage a war against both use and the underhanded tactics employed by the industry, this week explained that the industry has refused to be outsmarted, blatantly ignoring international and national policy.
“South Africa is a big importer of (tobacco) leaves,” Dr Sharon Nyatsanza said, as she explained that this would be a big economic boost for South Africa’s economy, but due to the lack of monitoring and being granted tax breaks and exemptions, they avoided paying due taxes.
This she said, was coupled with the government lacking tracking and tracing mechanisms. “There are tobacco farmers in the country, even if they are too few, but because of no track and tracing from government, declaration of how much is then exported depends on what the industry declares. So they can declare a small portion and supply other countries with much more, and not pay export excise.”
Echoing this was Peter Ucko of the Tobacco, Alcohol and Gambling advocacy group, when he gave the example of the Covid era ban on smoking.
“During Covid illicit trade in tobacco was massive. Despite it being banned there was a lot of trading in tobacco in the country, as large consignments meant - and declared, for Namibia never reached that country. Instead they made the round trip back and were brought right into the SA market, landing in the hands of criminals. This way they evaded paying tax.”
It was also money laundering, he and his compatriots said.
The system was weak, the security and supply chain - from manufacturing to packaging to exporting, was dependent on the tobacco industry, so they declared what they did, while millions worth of tobacco went undeclared and unpaid for.
Sars says that evading payment of the correct amount of customs duty harms the economic and fiscal interests of the state, and can result in unfair competition. And, said Ucko and his colleagues, the tobacco industry managed to do exactly that.
Their involvement in the illicit trade remained immeasurable. “Cigarettes as they are, are legal, and even those that are called counterfeit are legal produce,” said Ucko, adding that so much more remained in the hands of illicit traders who were not caught. This he said effectively meant the tobacco industry continued to rake in the profits at unmonitored rates.
Sars did, at some point, have a specialised unit which dealt with the tobacco industry, but it was disbanded. This has allowed the industry the leeway to import and export at free will, and, when they manufacture and declare what is exported, they are said to do so at what numbers suit them.
“There is no way to trace and track what they manufacture, what they export, or even what they import. This has left the doors wide open for the industry to do what they want and remain a rich industry, operating for their benefit,” Nyatsanza said.
“In fact, the money that goes into state coffers is from the user as the industry is only the collection agency. All they pay for is the profits they make.”
This is despite Sars saying: “In South Africa is a policy where the seller is responsible for ensuring goods arrive safely to a destination, and where the buyer is responsible for import duties,” something those who have kept a keen eye on the industry say has been ignored and evaded.
South Africa has agreed to, but not ratified, regulation 5.3 of the World Health Organization’s (WHO) treaty - the Framework Convention on Tobacco Control (FCTC), which is an ‘evidence based treaty that reaffirms the right of all people to the highest standard of health.’
It is within this that the law is meant to prevent fraud, deception and unfair business practices.
Professor Lekan Ayo-Yusuf said due to this and other issues, there was a lot of evidence that the tobacco industry did not conform and did not pay tax, even as they continued to increase their profits.
The project coordinator for the National Council Against Smoking said: “Some politicians were either innocently involved in the tobacco industry while others are in for nefarious reasons.”
They had a seat at the table which sought to regulate their operations, and this muddied the waters.
“Politicians are corruptible, and have lunch and go on holidays with industry players. The collusion is massive.”
The stakeholders agreed that the tobacco industry had too many people in its pockets, sat at the same table that would disadvantage them, and as a result averted the course of justice which would see them work within the confines of the law.
The treaty prohibits tobacco companies from engaging in anticompetitive mergers and other business practices that restrict competition and harm consumers.
And this is where they meddled and interfered. They either blatantly participated in discussions around their operations or sponsored organisations which did, so they had both an eye and ear in discussions. They were also accused of manipulation, and taking advantage of the country’s economy and high youth unemployment, sponsoring causes and organisations which required funds, and which would then protect and fight for their continued existence when the issue came up.
“Since 2005, SA is party to WHO FCTC, among which are national coordinating mechanisms. While worldwide there has been a decrease in tobacco interference, not so much in SA,” said Ayo-Yusuf.
There is a high prevalence of tobacco use and the industry has, since 2010, become powerful in the country. This way, Ayo-Yusuf said, they always had a seat at the table, and continued to divert, delay and dilute laws and policies.
“By sitting with policy makers they divert attention away from how they operate, how they are taxed; they have had a hand in the delay of the regulation; and because they dilute policies they are able to continue to operate and evade paying taxes, to putting tobacco in the hands of thousands of people, half of who die from use.”