BAT Says South Africa Losing $1.6 Billion to Illicit Cigarettes | Company Business News

(Bloomberg) — South Africa has become one of the world’s biggest markets for illicit cigarette sales losing around 28 billion rand ($1.6 billion) a year to tax evasion, according to a new report.

While Africa’s most industrialized economy has long struggled to prevent cigarettes being smuggled from neighboring countries, domestic manufacturers have also increased under-the-counter production, spurred by the country’s pandemic-era cigarette ban.

Research firm Ipsos, in a study commissioned by the South African unit of British American Tobacco Plc published on Tuesday, found nearly 80% of the country’s retailers sell cigarettes below the minimum tax threshold. That’s almost three times as many as seen in 2022, meaning foregone taxes in a cash-strapped country that can ill afford to lose that revenue.

The bulk of such cigarettes are sold via convenience stores and vendors at prices below even the minimum 26.22 rand ($1.48) tax per packet charged by the South African Revenue Service, said BAT’s head of regulatory affairs in the region Johnny Moloto.

“Currently, about 18% of cigarettes are sold at around 10 rand for a packet of twenty in South Africa,” he said in an interview on Tuesday in Johannesburg. “Sales of illicit cigarettes are a problem across the world, but South Africa is one of the worst affected markets.”

The illegal trade has been on the increase worldwide, although the majority of smokers are in lower and middle income countries that cannot afford the loss in tax revenue.

It also poses health and security concerns, providing organized crime with opportunities for income and money- laundering. The World Health Organization estimates that one in every ten cigarettes smoked globally is illicit, costing governments more than $40 billion a year in lost taxes. 

South African billionaire Johann Rupert this year decided to fully divest his interest in BAT, ending the family’s generational ties to the tobacco industry.

Molotto said there were easy ways for the government to assist with the trade of illicit products, including adding customs officers to factories, monitoring any breaches of licensing conditions and writing an minimum floor price into law.

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