On 8 October, the Executive Director of the National Council Against Smoking (NCAS), Savera Kalideen wrote in the Daily Maverick a column entitled “Increasing Tobacco taxes saves lives and raises revenue.”
Kalideen argues that by increasing tobacco taxes, government will grow its revenue.
Allow me take this opportunity to respond.
Kalideen correctly states that some tobacco companies pay the taxes they owe but most do not and that as a result, tobacco tax revenues are declining.
She argues that the solution to this is to increase tax rates on the few tobacco companies that actually pay up. Really?
Surely a better idea would be for government to rigorously enforce its tax laws against companies which are evading tax and once it does that, then it might make sense to increase the rates.
Before that, a tax increase would be futile, even counterproductive.
The fundamental problem with the NCAS proposal to increase tax rates is that for each of the last three years (including this year), the government has not lifted a finger to tackle illicit trade and related tax evasion in the tobacco industry and criminals have enjoyed an effective tax holiday.
Here are two facts that are undisputable (except by illegal cigarette sellers and their apologists)…
Illegal cigarettes in South Africa are widely available and visible in almost every informal shop in the country, even more so than most legal brands.
They are sold for as little as R5 per pack. R5, Let that sink in. What possible good could a tax rate increase do when 20 cigarettes can be easily bought tax free for R5?
In each of the last three years, the NCAS lobbied government to increase tobacco taxes, on the pretext that they would increase revenue and reduce smoking.
Government did so – above the rate of inflation – and government lost money.
According to Treasury’s testimony before the SARS Inquiry, tobacco excise receipts are down 20% in the past 12 months alone. Government tobacco tax revenue falls every year despite rate increases. And not because people are smoking less but because people are smoking tax free.
Why is this? It’s become painfully clear from the SARS Inquiry that our tax collection agency is thoroughly broken and was likely deliberately broken between 2014 and 2017, partially to protect tobacco smugglers.
In 2016, the former SARS administration established a Tobacco Task Team. That team did not investigate one single tobacco company.
Instead, it focused on suspending a senior anti-illicit tobacco investigator in the organisation and an anti-corruption agent who had received intelligence about a SARS official colluding with a tobacco smuggler. This is a national disgrace!
Clearly, a priority for the country is that government should enforce its tax laws. And specifically, it should re-learn how to enforce its tobacco tax laws. Until it does, there is no sense whatsoever in increasing tax rates.
Its time to stop doing what’s not working and fix the basics.
It certainly appears as if Acting SARS Commissioner, Mark Kingon, wants to crack down on illegal cigarettes.
But so far, nothing has happened. It may be that Tom Moyane’s acolytes retain significant power in SARS. It may be that the institution is so broken it will take more time to fix but until it is working again, tax increases will achieve nothing except more revenue declines – as has been the case in the past few years.
I am the spokesperson for the #TakeBackTheTax campaign, a TISA funded campaign which demands that government take action now against tax evasion in the tobacco industry.
I therefore call on SARS to investigate everyone, including the international players, but crucially, also those companies whose brands are selling on the market for a fraction of the legal minimum tax owed to SARS.
It is more than a little surreal that TISA, a tobacco industry association, must run a petition to force government to enforce its own tobacco tax laws and collect what is owed. But that’s our current reality.
I have a proposition for the NCAS…
I challenge the National Council Against Smoking to throw its support behind the #TakeBackTheTax campaign.
I challenge the NCAS to do the right thing, show leadership and resolve and join the 15,000 citizens that have already petitioned SARS to collect what South Africa is owed from the tobacco industry.
Once they do that, and the illicit cigarette trade in South Africa is reduced to the global average of 10%, I will support NCAS’ call to increase tobacco excise.