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Legal tobacco industry pleads for tax freeze

| Legislation

Tobacco farmers, manufacturers and other organisations in the sector have pleaded with the government to freeze proposed tax increases on tobacco products announced in the 2020 Budget, due to the impact on the sector of Covid-19 and the sharp increase in the sale of illegal products.

The South Africa Tobacco Transformation Alliance’s Ntando Sibisi told Parliament’s Standing Committee on Finance, which met to consider draft tax legislation yesterday, that an increase in excise taxes would lead to lower revenue to the government, as tobacco products would become less affordable, and would lead to an even bigger proliferation of illegal products that had mushroomed during the five-month sales ban imposed on the industry during the lockdown.

 

He said the proposed increase amounted to “punishing us twice”, and some tobacco farmers and processors would go out of business if the duties were increased.

He said the proposals also flew in the face of the National Treasury’s own policy guidelines to limit excise taxes to 40percent of the price.

He said that better law enforcement against the illicit trade could result in additional tax revenue.

In the Budget, Finance Minister Tito Mboweni announced plans for a new tax on heated tobacco products, such as hubbly bubbly, at a rate of 75percent of the cigarette excise rate, and a new tax on vapers and e-cigarettes, while tax increases on more traditional cigarettes would result in consumers paying up to 74cents more for a packet.

Sibisi suggested the government rather legislate a minimum retail price level, as other countries had done, which would make it easier to act against the illicit trade, which typically sold cigarettes at prices below what tax could be legally charged.

British American Tobacco South head of external affairs, Johnny Moloto, said the market was still “flooded” with illegal tobacco products, which were selling at pre-lockdown prices, and the criminal networks created to sell these products during the lockdown were now “embedded”, and it may take years to “get out of the system”.

Moloto said the government should consider freezing any proposed increased in excise tax, and adhere to its own guideline of excise taxes being limited to 40percent, as it was currently 41.4percent of the price.

Limpopo Tobacco Processors, which employs more than 400 people, told the committee it had experienced a dramatic drop in demand since the lockdown and the rise in the illicit tobacco trade, while tobacco farmers that supplied the company were struggling financially and had already substantially reduced their plantings, which was resulting in job losses.

The South Africa Informal Traders' Association said in its written submission they had first-hand experience of how over-taxed legal products had allowed the entry of illegal products, making it difficult for informal traders to compete. The organisation said that taxing less harmful tobacco products would close the door for consumers and informal traders hoping to switch to these products.

 

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