British American Tobacco SA (Batsa) is concerned the Department of Health’s proposals for plain packaging would boost the illicit trade in tobacco that, at about 24% of SA’s cigarette market, is twice the global average, and could further reduce the tax take from tobacco.
Tobacco firm puffs over plain packaging
Batsa CEO Soraya Zoueihid said the company expected similar adverse consequences as in countries such as Australia, where the incidence of illicit tobacco had increased by 30% since the introduction of plain packaging.
The legislation, which has yet to be tabled in Parliament, would ban branding on cigarette packets and could boost the consumption of cheaper cigarettes, which are often illicitly manufactured in SA with no excise tax or value added tax paid.
A Batsa study has found its operations contribute R14.5bn to the fiscus annually in taxes and excise duties, accounting for 1.46% of total government revenue and 27% of excise tax. The government could collect R5bn more if tax were paid on all the cigarettes sold in SA, it says.
Batsa, which has 80% of SA’s legal cigarette market, said recently it was shutting its anti-illicit tobacco operations and had launched an inquiry into allegations of bribery and illegal activity relating to law-enforcement agencies, including the South African Revenue Services’ (SARS’) so-called rogue unit.
Although the Hawks confirmed they were still investigating the SARS rogue unit, Zoueihid said the Hawks had not asked Batsa for help.
She said it was too early to tell whether the suspension of the group’s anti-illicit tobacco activities had had any effect on the cigarette market.
Batsa has been under pressure from its parent BAT and from regulators because it produces cigarettes in SA at much greater cost than elsewhere (Middle East, emerging Europe and Africa). The leaf produced in SA, of which Batsa buys 90%, is about 20% more expensive.
However, Zoueihid said the company remained committed to SA, where it employed 2,200 people directly and 72,000 indirectly, and accounted for 0.5% of GDP. It supports 100 emerging tobacco farmers and 6,000 farming jobs.
Rival manufacturer Carnilinx said recently it had laid charges against Batsa, although Batsa’s head of external affairs, Joe Heshu, said the company had not heard anything about it.
BAT recently launched a $47bn bid for Reynolds Tobacco, which Reynolds has rebuffed, but Zoueihid said talks continued. Reynolds was a great fit, and would give BAT a leading position in the US market and was strong in “new-generation” products, Zoueihid said.