By Lloyd Phillips
The above-inflation increases to taxes on legal tobacco products announced in Wednesday’s national budget speech for 2025/’26 are going to make the illicit trade even bigger and richer. An expert on the national tobacco value chain says the South African government “does not want to listen”.
If South Africa’s 2025/26 national budget remains unopposed as it is, the new minimum collectable tax (MCT) of R26,35 on a packet of 20 legitimately manufactured and sold cigarettes is going to drive even more smokers into the clutches of the country’s already booming illicit tobacco trade.
Francois van der Merwe is a director of the Limpopo Tobacco Processors company and was head of the former Tobacco South Africa industry organisation.
He reminds African Farming that a staggering 70% of South Africa’s market for tobacco products is already illicit.
“The only thing that happens if the excise [on legal tobacco products] increases is that it simply increases the margins of the illicit [tobacco] companies [and trade]. They don’t pay tax [but] the legal companies do, which results in legal products becoming even more expensive in relation to non-taxed cigarettes. This means even lower volumes for the legal industry and lower collections by SARS,” Van der Merwe says.
“The cycle just continues with increasingly lower legal volumes, increasingly greater illegal volumes, more tobacco consumption, the health agenda goes out the window, and the legal value chain declines even further. Just in the years since Covid-19, the legal value chain – right down to the tobacco farmers – has declined by well over 40%. If this continues we will see the demise of the legal [tobacco] industry soon.
“Government and National Treasury do not want to listen.”
Van der Merwe notes, on a hopeful note, that SARS has been allocated additional resources, which the legal tobacco industry has urged to be used in combating the illicit tobacco trade, valued at R25 billion a year. In contrast, National Treasury collected only R8,3 billion in taxes on legal tobacco products during the 2023/24 financial year.
British American Tobacco SA, South Africa’s biggest legal tobacco company, said that it would only comment on Wednesday’s national budget speech once this budget was officially accepted by all parties in the country’s government of national unity.
The South African Tobacco Transformation Alliance had not responded to a request for comment by time of publication.
