Mboweni's cigarette price hike a 'windfall for the illegal market': Batsa
The 2021 annual budget speech by the finance minister took place in Cape Town on February 24 2021. All eyes were on Tito Mboweni as South Africans were looking forward to a growth-inspiring budget. Things like fuel levies, sin tax and debt were increased while personal taxes were largely unchanged.
British American Tobacco SA (Batsa) believes finance minister Tito Mboweni made a mistake by hiking tobacco prices as the industry tries to recover from the ban that was imposed during the hard lockdown.
Batsa said on Wednesday it was “shocked” by the double-inflation increase in tobacco excise.
It is a gift to the syndicates in the illegal market while destroying the legal tobacco market. If the illegal cigarette barons were given the opportunity to write government policy, this is exactly what they would doBatsa GM, Johnny Moloto
“The 8% increase is far in excess of the government’s planned excise policy and is another windfall for the illegal market that flourished during the 20-week prohibition last year and now is over 50% of the South African market — one of the highest in the world,” Batsa said in a statement.
“The affect will be disastrous for the government’s attempts to recover billions of lost revenue at a time when the country needs the money the most.
“The legal tax-compliant industry has failed to regain billions of sales lost to national and international criminal enterprises during the sales ban and the threat of significant job losses is greatly exacerbated by this dangerous excise hike,” Batsa added.
Delivering the latest budget speech, Mboweni announced an increase in sin taxes which will see smokers fork out R1.39 more for a pack of 20 cigarettes.
Batsa's general manager Johnny Moloto said law-abiding citizens would suffer from the price hike while those involved in illegal cigarette smuggling and sales would thrive under it.
“Taxes are only paid by lawful people. This huge increase will further stoke the illicit market and will undoubtedly result in falling tax revenues for government, while illegal players increase their profits and become even more deeply entrenched,” said Moloto.
“By radically departing from its planned excise policy, government is only compounding the losses incurred as a result of its previous mistakes.
“Such a big excise increase is like pouring fuel on the fire they lit under the illicit market with the lockdown ban. It is a gift to the syndicates in the illegal market while destroying the legal tobacco market. If the illegal cigarette barons were given the opportunity to write government policy, this is exactly what they would do,” he added.
Moloto said the move by Mboweni would have dire consequences.
“The more expensive legal cigarettes are, the more attractive cheaper illicit brands become, and we are perplexed that government is not taking serious action against the illicit trade in tobacco.
“More money will be diverted away from legitimate, taxpaying businesses, further reducing the government’s own revenue. Meanwhile, more money will go to organised crime syndicates to fund all sorts of other antisocial activity, from drug-trafficking to gang warfare. In a year marked by costly mistakes, this could be the costliest of them all.”
Batsa said it was still trying to get law-abiding customers who were forced to turn to illegal cigarette sales during the ban back on board.
“Many consumers — even those who would otherwise not contemplate purchasing illegal goods — bought illicit cigarettes during the ban. As a result, illicit brands have become ‘normalised’, even to higher-income consumers.
“Furthermore, the ban enabled the establishment and strengthening of new distribution networks for tax-evading brands, providing these brands with better penetration into the consumer market,” Batsa said.