The South African Revenue Service has instituted a civil process to recover R200m it says was lost to the fiscus through the illicit tobacco trade.
The tax agency’s executive head of customs and excise, Kumaran Moodley, and its acting head of digital information services technology, Intikhab Shaik, on Tuesday briefed Parliament’s Standing Committee on Finance on illicit tobacco trade.
Moodley told members of Parliament that the R200m claim related to a single case investigated by project Honey Badger, which was previously disbanded by former commissioner Tom Moyane. He did not say against whom the agency had instigated the case.
According to Moodley, SARS investigators found that large volumes of cigarettes, supposedly exported from South Africa, were in fact diverted and sold locally without paying excise duties, in a case that dates back to 2011.
Excise duties are a form of tax imposed on specific high-volume products, such as tobacco and alcohol. According to SARS, the duties ensure a “constant stream of revenue for the state”, while also discouraging consumption of certain harmful products.
While the Tobacco Institute of South Africa, which represents major players in the industry, has said that since 2010 the illicit tobacco trade has cost National Treasury as much as R40bn in tax revenue, SARS did not confirm the total amount lost to the fiscus on Tuesday, ,
According to Shaik, SARS measures “cigarette sticks” and not revenue volume, as the excise duty tax is, in part, meant to deter people from smoking and is not a major revenue generator. “People talk of losing so much money. But it’s not about money, it’s about safeguarding health. We count sticks – [because] it does not matter how much that you sell sticks, it matters that someone smokes it,” Shaik said.
Treasury officials were also at the committee meeting to weigh in on revenue losses. Chris Axelson, Treasury’s chief director of economic tax analysis, said three years ago there was a 7% drop in excise duties and domestically produced tobacco. Two years ago there was a 9% drop. In 2017, Treasury forecast that it would receive R15bn from excise duties and domestically produced tobacco. But by the end of the year had only received R11bn. This revenue was dropping despite tax hikes. “In all the three years we were increasing excise duties on tobacco, at a rate increasing more than inflation and still had a reduction in revenue. It was perplexing from our side,” Axelson said.
The drop in revenue coincided with the issues at SARS at the time, he added.
Last year, however, there was a rebound, although off a low base. Axelson siad excise duties and domestically produced tobacco revenue increased by 9%. “It looks like it’s getting better,” he said.
Scratching the surface
The revenue collection agency also gave the committee an update on seizure operations and the value of the illicit goods.
According to SARS, between April 2019 and October 2019, there were 306 cigarette seizures. A total of 44.9 million cigarettes, to the value of R40m, were seized. In the same period, 23 cases or 11 740kg of tobacco – valued at R77 000 – were seized.
“Three criminal matters are currently in court that relates to cigarette and tobacco smuggling,” Moodley said. There are also currently investigations into the movement of raw tobacco, which was imported and suspected to be used for illicit cigarette production, he added.
ANC MP Maidi Mabiletsa and DA MP Geordin Hill-Lewis both said they believed not a lot was being done to stop the illicit tobacco trade, and the revenue service is currently only “scratching the surface”.
Shaik concurred. “As SARS we need to up our game,” he said. SARS is in a process of rebuilding its capacity, he added.
SARS in October this year relaunched its Large Business Centre, which had also been dismantled by Moyane. The centre focuses on revenue collection from large corporates.
