Stubbing out illegal cigarettes will help plug SA’s budget deficit – Business Day (registration)

There may therefore be a need to broaden the tax base and take a hard look at parts of the economy where the government is not getting its proper due.

Dealing with the trade in illegal cigarettes, for example, would be an easy place to start. It has cost the fiscus an estimated R4bn to R5bn in lost revenue each year, and about R24bn in the past five years.

Costing on average about R12 per pack and in some cases as little as R7 (compared to about R35 for the most popular brand on the market), it should be no surprise that the illegal trade is flourishing and accounts for a staggering 24% of the South African market. Growth in illicit trade can only serve to erode the tax base.

So, why does this matter? Some would argue that the legitimate tobacco sectors loss to illicit traders is no big deal. The production and sale of illegal cigarettes, however, is not a victimless crime. Not only does the government lose out on substantial revenues that could be used to deliver vital public services, but the proceeds from the sale of illegal cigarettes are often used to fund drug smuggling, human trafficking and other crimes that blight communities.

Some smugglers even have links to terrorism. Combined, this "double whammy" of tax losses and increased crime (which requires yet more expenditure on police to tackle it) is having serious consequences in SA.

In theory, correcting this should be relatively easy. Tobacco products are manufactured or imported in a limited range of brands and excise is levied at a specific rate per thousand cigarettes (R662), due for collection at the point of manufacture or import into the country.

An embossed diamond marking on the bottom of the pack is intended to provide a physical indication that tax has been paid.

Read the rest here:

Stubbing out illegal cigarettes will help plug SA's budget deficit - Business Day (registration)