Cigarette war hots up
Supermarket group Spar is being investigated by the Competition Commission after banning SA-produced cigarettes, whose manufacturers are alleged to be tax dodgers, from its shops.
The withdrawal is the latest battle in a war being waged between multinational cigarette manufacturers and South African producers, which is being fought through opposing industry groups the Tobacco Institute of Southern Africa (Tisa) and the Fair-Trade Independent Tobacco Association (Fita).
Tisa represents global tobacco giants like British American Tobacco (BAT).
Fita's members include South African manufacturers Carnilinx, Gold Leaf Tobacco Corp and Amalgamated Tobacco Manufacturing. Among the cigarette brands banned are RG, Savannah, Pacific and Sahawi.
Last week Business Times revealed that BAT was involved in a R143m tax dispute with the South African Revenue Service (Sars), as well as a R2.1bn tax assessment issue with Sars. Despite these disputes, BAT's cigarette brands, which include Peter Stuyvesant, remain on Spar's shelves.
In an internal e-mail to management and store owners dated October 10 2018, Spar Western Cape and Namibia MD Mario Santana, writing in reference to Fita's members, states: "Please can you ensure that NONE of these brands are supported in your stores, we can't be seen to be supporting these brands both legally, ethically and from a brand reputation point of view."
In a second e-mail, Spar's executive management tells regional managers the decision is based on two Ipsos studies, commissioned by Tisa and funded by its members, which claim the economy allegedly loses R7bn worth of taxes annually through the sale of illicit cigarettes.
The second e-mail lists Fita members whose brands are to be removed from Spar's shelves and "any regional tobacco manufacturer/distributor marketing below the minimum tax portion owed to Sars".
The Ipsos study focused on the sale price of a box of 20 cigarettes, and said if it sold for less than R17.85, the minimum amount needed to be paid to Sars by tobacco manufacturers in order for them to be tax compliant, it was illicit.
The second e-mail asks Spar's regional managers to ensure "from a divisional point of view that your region complies with the group direction and gives immediate notice and refrains from any business with any of the above-mentioned suppliers.
"Please ensure that your members are briefed accordingly and that Retail Operations are briefed to ensure that no member stores are selling any of the brands which the [Ipsos] reports highlighted."
Competition Commission spokesperson Sipho Ngwenya confirmed it was investigating a complaint by Fita against Spar. He said the probe was in its preliminary stage. "The preliminary investigation will determine whether there is an anticompetitive case to be investigated." Spar had submitted a response, "which we are considering".
Spar's spokesperson, Kerry Becker, said it would not comment while the commission was conducting its inquiry.In January, Fita wrote to the commission demanding an investigation into Spar's decision, which it alleged amounted to anticompetitive behaviour. In his letter, Fita chair Sinen Mnguni said the organisation was part of an agreement with Sars to combat the illicit cigarette tobacco trade."All our members are tax compliant. The underhand methods of Big Tobacco worldwide are well documented. SA has been no different . in the past Tisa members have resorted to measures to ensure that the tobacco industry remains anticompetitive and dominated by a small number of multinationals."Mnguni said whistleblowers had provided information which pointed to deficiencies in the Ipsos study. "Tisa used this campaign to vilify our members to the public."Mnguni told Business Times that Spar's decision was part of a ploy by multinationals to maintain market dominance. He said they had written to Spar calling for the group to act free of undue influence, "but unfortunately our calls have been ignored".Gold Leaf Tobacco lawyer Raees Saint said Spar's decision was based on flawed studies, and never took into account the counterfeiting of products that are always cheaper on the black market. "My client is currently involved in extensive litigation over its brands being counterfeited."The Ipsos study "never took this into account or that our client sells its cigarettes in shops, like Spar, for R21. Based on the Ipsos study my client's cigarettes are not illicit, yet Spar has relied on this study to remove my client's cigarettes off their shelves." He said they believed multinationals were possibly trying to muscle out local producers.Branded World distributes Carnilinx cigarette brands and manager Clinton Aspeling said: "One must ask if, in applying the same logic on the minimum sales price, are retailers now also guilty of tax evasion? The biggest question to be asked, though, is how was it determined that selling cigarettes at less than R17.85 is illicit? Were invoices ever inspected to see if taxes were paid?"Neran Ramadhin, customs and excise consultant for Fita member Amalgamated Tobacco, said Spar's decision had had a direct impact on the company and was causing reputational damage."It is unfair. It's nothing more than cutting out any competition, which goes against the conditions of trying to create a fair environment for all businesses to operate within."Tisa chair Francois van der Merwe welcomed Spar's decision and said all retailers should consider barring brands that obviously evaded their excise duties."Fita member brands dominate the trade in illegal cigarettes, accounting for around 80% of all cigarettes selling below just the tax owed to Sars per pack."firstname.lastname@example.org..