Business Leadership South Africa (BLSA) is calling on the SA Revenue Service (SARS) to immediately reinstate specialised units to clamp down on illegal cigarette sales, which are costing the economy R7 billion a year in lost tax revenue, which is 14% of the R50 billion shortfall that SARS recorded over the past financial year.

According to a study released by the Tobacco Institute of Southern Africa (TISA) today, illegal cigarettes – costing as little as R5 per pack – are now available for sale in more than 100 000 shops across South Africa.

The study, conducted by IPSOS, also shows that more than one third of cigarettes in ‘non-organised’ shops – which account for almost 80% of all tobacco sales – are being sold for well below the government’s R17.85 minimum in tax payable, suggesting no tax is paid on them. Critically, R17.85 excludes any input cost thus this an absolute minimum amount.

“This is a clear evidence that the R50 billion revenue shortfall was not the result of only the economic slowdown as has been suggested, but a man-made gap created by lack of enforcement resulting from the corrupt decision to stop investigations and inspections of, amongst others, cigarette factories – a statement made in testimony given at the Nugent commission this past week,” said Bonang Mohale, BLSA’s CEO.

The Nugent Commission of Inquiry was appointed by President Cyril Ramaphosa to investigate governance and tax administration concerns at SARS. It began hearings a week ago.

The study also found that those companies operating within the legal framework are only operating at 60% of their capacity. This is likely to have a negative impact on the existing jobs, investment and job creation potential in the agro processing value chain, where between 8000 and 10 000 jobs are under threat and most from small farmers.

BLSA urges finance minister Nhlanhla Nene to follow through with his announcement earlier this week  to reinstate the divisions that were collapsed under Mr Moyane’s watch that include the inspections and investigations of cigarette factories.

“This year, for the first time, in our 24-year democracy, government raised the level of Value Added Tax as part of a desperate move to plug the revenue shortfall. The IPSOS study has shown that the revenue shortfall was worsened by illicit cigarette trade.”

“Minimally, Minister Nene should reinstate these inspections as part of measures to restore tax morality and confidence in SARS – once a reputable world class public institution. The disciplinary inquiry against Mr Moyane should also proceed without further delay. SARS is too important an institution to be leaderless for an indefinite period,” said Mohale.

Earlier this year, BLSA members – who represent amongst them, major corporations in South Africa – pledged to work with government in restoring the public’s confidence in state agencies including SARS. “We are also calling on business – both private and public sectors – to continue calling out those within their ranks who are complicit in tax immorality. All those with knowledge of wrongdoing at SARS should approach the Nugent Commission with this information,” said Mohale.

Mohale says the report also highlights the need to strengthen all parts of law enforcement including crime intelligence as well as the investigating and prosecution capacity of the Hawks and the National Prosecuting Authority (NPA) in order to combat organised criminal syndicates.

“The strengthening of key state institutions is a process to which BLSA has committed itself. Across the world, illicit trade generally feeds to serious criminal activities”, said Mohale.  “Finally, we want to encourage the acting commissioner Mark Kingon to continue rooting out elements within SARS which are aiding the culture of non-compliance which is costing our country dearly in lost tax revenues,” said Mohale.