Cigarettes and tobacco products remain banned under current legislation around the coronavrius in South Africa. The illicit trade in tobacco products poses a serious threat to public health because it increases access to tobacco by making cigarettes more affordable. In 2018, the real excise tax increased by 3% and the value-added tax (VAT) rate increased from 14% to 15%. This study has shown that the illicit trade in cigarettes has become widespread in South Africa, at 30% of the overall market. }_i=\frac{Tot{Exp}_i}{Num{ Items}_i},\\ {} if0.5\le \frac{Tot{Exp}_i}{Num{ Items}_i}\le 4\\ {}\&\kern0.5em Tot{Exp}_i\ge 5\end{array}} $$, $$ {\displaystyle \begin{array}{l}{\raisebox{1ex}{$\mathit{\Pr}$}\!\left/ \!\raisebox{-1ex}{$ Cig$}\right. Dual markets. Within a month of becoming Commissioner, and following reports in the Sunday Times, South Africa’s largest newspaper, about the existence of a “rogue unit” within SARS, Moyane announced that he had no confidence in the SARS executive committee and disbanded it (Pauw 2017). Available at: https://web.archive.org/web/20190311091719/http:/www.tobaccosa.co.za/wp-content/uploads/Ipsos-Tobacco-Market-Study-REPORT.pdf. The case of South Africa. European law enforcement authorities seized 67 million cigarettes and 2.6 tons of tobacco worth €35.82 million ($43.62 million) last month, according to Europol. Available at: https://web.archive.org/web/20180913120755/http://www.takebackthetax.org/. By 2014, SARS had launched proceedings or was acting against at least 13 tobacco manufacturers for crimes including corruption, bribery, attempted murder, money laundering, racketeering, tax evasion and fraud (Pauw 2017). For other price thresholds, a similar pattern holds. Econ Inq 33:189–202, SADHS (2016) National Department of health, statistics South Africa, South African Medical Research Council, and ICF, vol 2016. Tob Control 23:e69–e74, van Walbeek C, Shai L (2015) Are the tobacco industry's claims about the size of the illicit cigarette market credible? Cigarette sales have been banned since the start of South Africa’s lockdown on 27 March 2020, as cigarettes are not regarded as “essential products or services”. “The alleged involvement of a SARS officer is a sinister development and a full and thorough investigation must now be conducted to secure our borders.”. In 1994, the country announced a strategy to increase excise taxes rapidly, with the explicit aim of reducing tobacco use, making it one of the first middle-income countries to do so (van Walbeek 2005). In 2018, the Sunday Times again retracted these stories and acknowledged that they had allowed themselves to be manipulated by “a parallel political project aimed at undermining our democratic values and destroying state institutions and removing individuals who were seen as obstacles to this project” (Rupiah 2018). The purging of SARS was so destructive to the organization that a dedicated Commission of Inquiry into the state of SARS was launched in 2018. Smokers who have never married are more likely to purchase cheap cigarettes than married smokers, at all price thresholds. The number of cigarettes smoked per day is insignificantly associated with the purchase of cigarettes for less than R20 per pack, but is significantly positively associated with cigarettes for between R20 and R23 per pack. “They have established the world’s biggest black market in cigarettes and are making billions of rand every month in tax-free profits, while our ailing economy is being starved of vital funds. Although our data does not allow us to investigate the source of the illicit cigarettes, we can make inferences from the provincial data. Available at: https://web.archive.org/web/20190314140235/https://www.fin24.com/Economy/breaking-ramaphosa-fires-moyane-as-sars-boss-20181101. Business Day. Due to attrition amongst primarily White, Indian/Asian and high-income respondents, a top-up of 2775 individuals was added in wave 5 to maintain the representativeness of the sample. The study, Illicit Cigarette Trade in South Africa:2002-2017, was released on August 5 and found that by 2017 one out of three cigarettes smoked in South Africa was illicit. According to a study conducted by the South African Revenue Service (SARS), the estimated loss through the illicit trade of cigarettes … Thus, the real tax on cigarettes increased by 4%. DataFirst, Cape Town, Dietz PM, Homa D, England LJ, Burley K, Tong VT, Dube SR, Bernert JT (2011) Estimates of nondisclosure of cigarette smoking among pregnant and nonpregnant women of reproductive age in the United States. https://doi.org/10.25828/fw3h-v708, Thursby JG, Thursby MC (2000) Interstate cigarette bootlegging: extent, revenue losses, and effects of Federal Intervention. The appointment of Tom Moyane, a close ally of Jacob Zuma, is generally perceived as an integral part of “state capture”, which has cast a long shadow over Jacob Zuma’s presidency. Tob Control 23:e17–e23, Judge Nugent R (2018a) Commission of inquiry into tax administration and governance by the South African Revenue Service, Final report. 2013), it seems that the primary rationale for making this argument was to dissuade National Treasury from increasing the excise tax on cigarettes. Since the sum of the excise tax and VAT in 2017 amounted to R16.30 (1.22 USD) per pack, any cigarettes selling for R20 (1.50 USD) per pack or less are likely to be illicit, assuming reasonable production costs. Individuals may not answer truthfully about whether they are smokers, or the number of cigarettes they smoke, because there may be stigmas associated with smoking, especially for specific demographic and cultural groups (Pérez-Stable et al. Available at: https://web.archive.org/web/20181206182733/https://www.iol.co.za/business-report/companies/sars-to-clamp-down-on-tobacco-companies-1611521. Over the past 10 years, the South African tobacco market has become increasingly fragmented as new entrants have entered the market and have taken market share away from the multinationals. For the other demographic and socio-economic characteristics, the difference in the prevalence of cheap cigarette use is smaller. From the regression results we find that specific socio-economic groups are more likely to purchase illicit cigarettes than others, specifically smokers who are White or Mixed Race, smokers who are older, have low levels of education, and have low household income per capita. Sunday Times. Illicit trade is widespread in South African townships: approximately one-third of the cigarettes in the sample were illicit. Cigarettes and tobacco products remain banned under current legislation around the coronavrius in South Africa. Our analysis uses responses from the adult questionnaire only, since the child questionnaire does not have tobacco-related questions. South Africa– Blue Sky Publications (Pty) Ltd T/A TheSouthAfrican Number: 2005/028472/07. Illicit trade An important proviso is that the South African Revenue Services and the enforcement authorities reduce the illicit trade in cigarettes. Objective The prevalence of illicitly traded cigarettes in South Africa has been reported to be 40–50%. 2019). In recent years, the illicit trade of cigarettes in South Africa has been dominated by undeclared sales and ghost exports. Packaging is the packaging type purchased by the smoker (including single stick, 10-pack, 20-pack, 30-pack and carton of 200 cigarettes). In a media release SARS says that “the destruction operation in Springs, which started on […] For many years, South Africa was regarded as a model country in terms of tobacco control policy. All cigarettes sold during South Africa’s unprecedented lockdown have likely been produced on the black market, and therefore poses serious dangers to your health, a local advocate against the sale of illicit products said. For example, an individual who reports consuming 10 cigarettes per day at R2 per cigarette, and who has a population weight of 3000 (i.e. van der Zee, K., van Walbeek, C. & Magadla, S. Illicit/cheap cigarettes in South Africa. However, the damage to SARS and to the people implicated in the Sunday Times articles was irreversible. Thus, it is reasonable to assume that this individual incorrectly reported spending R0.50 in total, and instead spent R0.50 per stick. The study, Illicit Cigarette Trade in South Africa:2002-2017, was released on August 5 and found that by 2017 one out of three cigarettes smoked in South Africa was illicit. Other than being the first nationally representative independent study to estimate the size of the illicit market, this paper quantifies and describes the characteristics of smokers of illicit cigarettes. The industry has traditionally been highly concentrated, with British American Tobacco (BAT) having a market share in excess of 90%, followed by other multinationals (primarily Philip Morris and Japan Tobacco) (van Walbeek 2005). Against the background of institutional failure and dramatic changes in the tobacco industry, this paper aims to provide an estimate of the size of the market for very cheap, probably illicit, cigarettes in South Africa. Available at: https://web.archive.org/web/20190314122636/https://www.timeslive.co.za/sunday-times/opinion-and-analysis/2016-04-03-sars-and-the-sunday-times-our-response/. Between 1993 and 2003, aggregate cigarette consumption reduced by a third and adult smoking prevalence fell from roughly 33% to 24% (van Walbeek 2005). }_i=\frac{Tot\ {Exp}_i}{200}\\ {} if\ 50\le Tot\ {Exp}_i\le 600\\ {}\&\kern0.5em \frac{Tot\ {Exp}_i}{Sticks_j}<0.5\end{array}} $$, https://www.datafirst.uct.ac.za/dataportal/index.php/catalog/712, https://web.archive.org/web/20181206182733/https://www.iol.co.za/business-report/companies/sars-to-clamp-down-on-tobacco-companies-1611521, https://web.archive.org/web/20190314140235/https://www.fin24.com/Economy/breaking-ramaphosa-fires-moyane-as-sars-boss-20181101, https://web.archive.org/web/20180810125449/http://www.tobaccosa.co.za/wp-content/uploads/IPSOS-2018-National-Tobacco-Market-Study-Executive-Summary-1.pdf, https://web.archive.org/web/20190311091719/http:/www.tobaccosa.co.za/wp-content/uploads/Ipsos-Tobacco-Market-Study-REPORT.pdf, https://web.archive.org/web/20190314115418/https://www.moneyweb.co.za/wp-content/uploads/2018/10/Interim-Report-.pdf, https://web.archive.org/web/20181122050837/https://www.fin24.com/Companies/Financial-Services/revived-sars-illicit-economy-unit-already-eyeing-58-cases-20181019, http://livelihoods.org.za/wp-content/uploads/2018/05/A-Smokescreen-Economy-township-grey-market-cigarette-trade-in-Delft_booklet.pdf, https://web.archive.org/web/20190302114739/https://bhekisisa.org/article/2018-09-20-00-tisa-take-back-the-tax-campaign-tobacco-bhekisisa-responds, https://web.archive.org/web/20181127103940/http://www.treasury.gov.za/documents/national%20budget/2018/review/FullBR.pdf, https://web.archive.org/save/https://www.news24.com/SouthAfrica/News/read-ramaphosas-full-letter-to-suspended-sars-chief-moyane-20180320, https://web.archive.org/web/20171031064837/https://www.timeslive.co.za/sunday-times/opinion-and-analysis/2016-04-03-the-rogue-unit-narrative-was-a-great-disservice-to-public-interest-and-made-up-of-lies-and-distortions/, https://web.archive.org/web/20190320085700/https://mg.co.za/article/2018-10-15-not-the-news-more-damage-expected-in-sunday-times-fake-news-fallout, https://webarchiveorg/save/https://wwwiolcoza/news/south-africa/gauteng/sars-target-of-tobacco-industry-backlash-1728457, https://web.archive.org/web/20190314122636/https://www.timeslive.co.za/sunday-times/opinion-and-analysis/2016-04-03-sars-and-the-sunday-times-our-response/, https://www.resbank.co.za/Research/Rates/Pages/SelectedHistoricalExchangeAndInterestRates.aspx, https://web.archive.org/web/20180913120755/http://www.takebackthetax.org/, https://web.archive.org/web/20190314123800/https://www.timeslive.co.za/sunday-times/opinion-and-analysis/2016-04-03-rogue-unit-never-broke-the-law-and-was-very-effective/, https://web.archive.org/web/20190218120226/https://www.businesslive.co.za/bd/opinion/2019-02-18-tobacco-industry-prepared-the-ground-for-illicit-cigarette-trade/, https://doi.org/10.1136/tobaccocontrol-2018-054798, http://www.who.int/fctc/protocol/illicit_trade/protocol-publication/en/, https://doi.org/10.1007/s12117-019-09372-9. Few are sold for an amount between R0.50 and R1.00. Over this period there were also significant increases in the excise tax on cigarettes. “SARS is losing R36-million ($2.1 million U.S.) per day in excise revenue since the lockdown started, which amounts to R1.5 billion a month,” Sibisi said, approximately $87 million. TISA made this claim despite the fact that, prior to 2009, they could offer no evidence to support this position (van Walbeek 2014; Vellios et al. Am J Epidemiol 173:355–359, Goel RK (2008) Cigarette smuggling: price vs. nonprice incentives. South Africa . Although we present the data for all four thresholds, the discussion focuses on packs that are sold for R20 or less, because we believe that this is the most accurate estimate of illicit trade. The final report by the commission also highlighted the growth in the illicit trade of cigarettes as one of the consequences of the institutional meltdown at SARS (van Walbeek et al. Appl Econ 44:3047–3064, Calderoni F, Dugato M, Aglietti V et al (2017) Price and non-price determinants of the illicit cigarette trade: analysis at the subnational level in the EU. Part of Springer Nature. The SARS official and two accomplices face charges of corruption and defeating the course of justice over the seized truck and contraband, which was allegedly cleared to pass over the Beitbridge border crossing from Zimbabwe. The call came as an official from the South African Revenue Service (SARS) was remanded in custody following the seizure of a truck carrying R10 million worth of illicit cigarettes in Limpopo last week. Independent Online Available at: https://webarchiveorg/save/https://wwwiolcoza/news/south-africa/gauteng/sars-target-of-tobacco-industry-backlash-1728457 31 Jul 2014, Siqoko B (2016) SARS and the Sunday times: our response. There is a spike in the volume of cigarettes at the R20 or less threshold, since this includes all R1 single sticks. Despite new tobacco control legislation and substantial increases in the excise tax after 1994, the multinationals were able to increase their net-of-tax turnover by raising retail prices substantially (Linegar and van Walbeek 2018). Overall, 19.6% of cigarettes were bought for less than R16.30, which was the tax amount at the time of the survey (Table 3), and 30.7% of cigarettes were bought for R20 per pack or less. A large proportion of these cigarettes were sold at prices that were so low that it was impossible for the full tax amount to have been paid (Liedeman and Mackay 2015). The South African Revenue Service (SARS) and the Tobacco Institute of Southern Africa (TISA) have destroyed illicit and counterfeit cigarettes, estimated to be worth R100-million if it were to be sold legally with all excise duties being paid to government. Accessed: 15 Mar 2019, van der Zee K, Vellios N, Ross H (Forthcoming) the prevalence of illicit cigarette consumption in 6 south African townships. Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. The new president, Cyril Ramaphosa, has made the rebuilding of SARS a priority. South Africa’s problem with illicit trade is real, and it requires a coordinated and comprehensive response. Tob Control  https://doi.org/10.1136/tobaccocontrol-2018-054798, World Health Organization (2013) Framework convention on tobacco control. Packs of 20 cigarettes are more likely to be cheap than single cigarettes, but only for very low price thresholds (less than R20 per pack). This undeclared local production poses an enormous challenge for the country. Twitter. Aside from the local economic and health impact, illicit smuggling poses a […] Packs with 10 cigarettes are the most expensive at R38.20 per 20-pack equivalent, followed by single sticks at R37.17. Abel Karowangoro - February 11, 2020. About 20% of all single sticks are sold at R1 per stick (i.e. In the second half of 2018, TISA launched a major public relations campaign, called #TakeBackTheTax, in which members of the public were encouraged to sign a petition to “implore the South African Revenue Service, the Parliament of the Republic of South Africa and law enforcement agencies to act with urgency and take decisive steps in combatting the trade of illicit cigarettes” (TISA 2018). 1 Nov 2018, Buehn A, Farzanegan MR (2012) Smuggling around the world: evidence from a structural equation model. Of the nine provinces, Gauteng, the economic heartland of South Africa and the province where most cigarettes are manufactured, has the second-highest prevalence of illicit trade. 2009; Dietz et al. The cleaned data gives a sample of 3507 smokers, representing approximately 5.6 million smokers (84% of smokers from the uncleaned data). To ensure that the data represent total cigarette consumption in the country, we weight each price observation by the respondent’s smoking intensity (cigarettes per day), as well as by their NIDS population weight. However, since 2004, the decrease in cigarette consumption and smoking prevalence has levelled off (Linegar and van Walbeek 2018). We assume that a single stick sells for between R0.50 and R4, a 10-pack sells for between R5 and R35, a 20-pack sells for between R8 and R60, a 30-pack sells for between R12 and R90, and a carton of 200 cigettes sells for between R50 and R600. 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