Smokers to cough up in bid to stub out illegal cigarettes
The price of cigarettes will rise further as smokers are expected to foot the bill for new technology the South African Revenue Service (Sars) plans to implement to track and trace the journey of cigarettes from the manufacturer to the consumer.
In a bid to curb the loss of billions of rands in potential tax through the production and sale of illicit cigarettes, Sars issued a tender this week inviting bidders to produce a solution that will allow independent verification of the volumes of cigarettes produced, without depending on declarations from manufacturers.
The technology must also complement security features embedded in legal cigarettes in the future to allow them to be distinguished from fakes.
Viwe Mlezana, acting chief officer for enforcement at Sars, said an additional R12bn could be collected once the technology was in place. Sars collects that amount from the sales of cigarettes annually.
The bidder will be expected to pay upfront for technology expenses and recover the costs from smokers. Mlezana said there would be minimal software adaptations necessary to ensure that the systems at Sars and manufacturers or importers are compatible. But the entire roll-out was expected to cost less than R1bn.
"The user will end up paying for what is going to be installed. The successful bidder will be the one that outlays the capital for the solution.
"And the bidder will recover their costs from the sales of cigarettes per packet. What that potentially means is that there will be an additional amount of money that will be added to the price of tobacco."
In developing the specifications for the solution, Sars had considered track-and-trace systems applied in many countries, including Kenya and the UK, Mlezana said. He expected the technology to be rolled out over a 12-month period.
The tender application deadline is June 20, with the successful bidder receiving an eight-year contract to manage the system. But there would be a cap on the costs the supplier could recover from consumers over this period.
The technology would be fitted at local cigarette manufacturers and at the source of imported cigarettes.
Manufacturers pay duties at the point of manufacturing. The only obligation for retailers is to pay VAT on cigarettes sold, Mlezana said.
Retailers have welcomed the solution, saying they support initiatives by the government to ensure compliance with the law.
Shoprite said it did not anticipate implications for retailers as "any such tracking mechanisms would be largely the responsibility of the producer to implement".
Other efforts to curb illicit activities are under way. A Sars unit has been established to investigate activities in the illicit economy, with a focus on tobacco and petrol.
Civil society organisation #TakeBackTheTax said the manufacture of illicit cigarettes cost SA at least R8bn annually.
It supported the implementation of track-and-trace technology but cautioned that appointing only one supplier would give someone a monopoly in the industry and create an opportunity for corruption.