Illicit Tobacco Trade

Finance Standing Committee

02 May 2018

Chairperson: Mr Y Carrim (ANC)

Audio
Illicit Tobacco Trade

Documents
National Prosecuting Authority (NPA) presentation
Illicit Cigarettes In South Africa: Directorate for Priority Crime Investigation presentation
Illicit Tobacco: Tobacco Institute of Southern Africa presentation
Illicit Tobacco: SARS presentation
Illicit trade in tobacco products: National Treasury presentation

Meeting Summary

The Standing Committee on Finance on Wednesday was briefed by several bodies on illicit financial flows in the tobacco industry. Among the bodies which made presentations was the Tobacco Institute of South Africa (TISA), the Fair Trade Independent Tobacco Association (FITA), the Financial Intelligence Centre (FIC), National Treasury, the Directorate for Priority Crime Investigations (Hawks), the South African Revenue Service (SARS), and the National Prosecuting Authority (NPA).

TISA indicated that it has been working with SARS to combat illicit tobacco trade (ITT) as far back as 2005. It was SARS and other law enforcement agencies such as the National Prosecuting Authority and Hawks’ mandate to come down hard on illicit trade. However, TISA was willing to partner with government and support government agencies through spirited partnership. There was need for action now; otherwise two years from now the tobacco industry would be gone. The whole market will be supplied by illicit products. TISA pointed out that Cabinet had on 25 April 2018 approved a new Tobacco Control Bill for public comment. From statements made in the media by the Minister of Health, the legislative proposals were extreme and may even exacerbate the current high levels of illicit trade. Therefore, TISA’s appeal to government and Parliament was to first deal with the illicit trade in tobacco products before imposing further tobacco control legislation. If illicit trade is not dealt with decisively, there may soon be no legal industry to regulate. He stressed that there must be political will from government to establish the fight against illicit trade as a national government priority.

FITA said illicit tobacco trade affects its members more than any other players in the local tobacco industry. This was compounded by the fact that the tobacco industry is monopolistic and anti-competitive firms, riddled with unethical practices for decades. Counterfeit tobacco products were also a huge challenge in South Africa. The organisation spoke of the discovery of illegitimate but sophisticated factories in Lesotho and Zimbabwe, counterfeiting FITA member brands then smuggling them into the country. Dealing with porous borders was thus an issue which the organisation was in continual discussion with SARS on. Although FITA had taken steps using its combined resources to deal with the illicit trade malady, it was not receiving any meaningful support from government. There was no support from law enforcement agencies despite these agencies bending backwards for the foreign multinationals. FITA could thus only rely on its own resources and expertise to try tackle these challenges. FITA expressed its support of all efforts to tackle illicit trade, and believed a more realistic and holistic approach was required to address the losses to the fiscus of which smuggling forms a better part. The time had come for all stakeholders to deal with the challenges affecting the local tobacco industry and ensure that the playing field is levelled for all.

National Treasury pointed out that an increase in illicit trade in tobacco products not only impacts on the fiscus (excise tax revenue forgone), but also hampered government’s regulatory mandate as well as national public health policies. There were various estimates of extent of illicit trade in tobacco, and these would vary over time as enforcement and general business conditions improve or worsen. Illicit trade increases the accessibility and affordability of tobacco products, fuelling the tobacco epidemic and undermining tobacco control policies. It also causes substantial losses in government revenues, and at the same time contributes to the funding of transnational criminal activities. There should also be better cooperation between SARS, the South African Police Service and the National Prosecuting Authority. The big issue was the need to get to the bottom of the allegations as identified by the Chairperson. The inquiry into SARS needed to look into this and find out what actually happened. He added Treasury was happy to set legislative framework in place but in terms of enforcement other institutions must be relied on.

SARS acknowledged that it had not done enough to tackle illicit tobacco trade in the past two to three years, and more needed to be done in the field. Tobacco and cigarettes were on the top of the agenda when it came to compliance programmes the tax authority is running. To this end, SARS was in the process of sprucing up its systems and acquiring Track and Trace technology that would effectively maintain the security of the SARS revenue base and ensure the following: enhanced Tax Revenue Collections by providing business intelligence to aid officials in auditing and enforcement; assurance of declarations made by vendors; proper accountability of all excisable movement control; accurate real time production accounting; and a complete system that allows full control by SARS to securely code or mark goods. SARS continues to clamp down on illicit trade, not just in the tobacco industry but in clothing and textiles, construction and high net worth individuals as well. Since the 2014/15 year to 2017/18, SARS had conducted 1 368 seizure operations, where 270 million cigarette sticks to the value of R217 million were collected.

The FIC said it carries one piece of the puzzle in the fight against illicit finance. While the FIC is not an investigative authority it supports investigations using financial intelligence generated through its analysis. In regard to combating ITT in South Africa, the predicate offence for money laundering would often be fraud (misrepresentations to prevent that necessary duties and taxes get paid). Consequently, the FIC has supported project-driven investigations relating to ITT by various law enforcement agencies (LEAs). Continuous meetings have been held with LEA investigation teams to understand their requirements to enable FIC to better support investigations. Based on matters handled by the FIC, it has been observed that both local and foreign nationals were involved in the ITT. The main perpetrators of smuggling of cigarettes in SA (operating on different levels in the value chain) were locals, foreigners and local tobacco manufacturers. The agencies with which the FIC worked closely on these matters were; SARS, Hawks, State Security Agency, and South African Reserve Bank’s Financial Surveillance. It expressed its commitment to continue engaging all stakeholders to counter the threat of organised crime, particularly ITT.  

The Hawks said tax evasion was at the heart of illicit tobacco trade. There is non-reporting of income through the vehicle of illicit tobacco trade. It explained that legitimate businesses were operating as a front to trade illicit tobacco from neighbouring countries. The South African Police Service (SAPS) does not have the capacity or manpower to check cigarette prices in stores. There are stores selling cigarettes as cheap as R10, when the tax on these boxes is over R17. However, the Hawks has the capacity to deal with criminal syndicates. The Hawks suggested that industry bodies TISA and the FITA) get manufacturers audited to determine how many cigarettes are sold and how much revenue is generated. This would determine the tax liability. Furthermore, the Hawks would willingly investigate tax evasion reported to them, but found problems with the interpretation of section 4 of the SARS Act, which deals with protection of information. The Hawks found it could not carry out investigations because SARS officials cannot share information on taxpayers. Stakeholders had to come together and deal with the challenge more decisively.

The NPA emphasised the importance of collaboration with the private sector and within the criminal justice sector in an effort to curb illicit tobacco trade. Together with the various stakeholders a tiered approach would have to be adopted based on best practices observed. Some of these were: use of civil penalties involving smaller consignments and where foreigners are involved; establishment of a joint operational committee on the illicit trade in tobacco products; identification of organised crime and/or corrupt officials for purposes of prioritisation of investigations and prosecutions; identification of the modus operandi and addressing with specific joint operations; and better sharing of information and joint target setting. The NPA provides a dedicated capacity to the Hawks and SARS in tax, organised crime and commercial crime which traverses the areas of illicit trade. The NPA was also in the process of finalising a memorandum of understanding with SARS which would endeavour to improve collaboration, joint target setting and operations in joint priority focus areas.

Members said it was clear there primarily was an enforcement problem in the fight against ITT. Part of the problems were lack of coordination between law enforcement agencies and capacity constraints. They believed there was little coordination among stakeholders, and a failure to identify what the real problems were. Also, the secrecy clauses of the Taxation Laws must not be an impediment to identifying wrongdoing.

The Chairperson said the money being lost through illicit flows was needed more than ever. He made reference to media reports of SARS being accused of being complicit in ITT. There were allegations that some stakeholders are paid functionaries; being paid by the wrongdoers. He asked the Committee research staff to establish the veracity of these claims and revert back to the Committee by August. He emphasised the need to establish an inter-ministerial committee to deal with ITT of which the Committee must also have the capacity to exercise oversight on same. From what Members could tell, there was more than enough scope for law enforcement agencies to act on ITT. However, if there was need for more legislation, what role could Parliament play to assist? The Committee would make efforts to meet in November or early next year to hear about progress. In the interim, the criminal justice system should be seen throwing serial transgressors into jail, and the revenue due to the people of this country should be collected by SARS. Also, nothing stopped the Hawks from operating like the Scorpions by carrying out prosecution-driven investigations.

Meeting report

The Chairperson welcomed everyone and stated that tackling Illicit Tobacco Trade (ITTs) was the Committee’s priority in its oversight mandate. Billions of rand were disappearing from this country or were not being paid to the South African Revenue Service (SARS). Parliament’s main concern was the revenue lost that should go to SARS and wanted to know what steps were being taken to curb illicit trade.

Tobacco Institute of South Africa presentation

Mr Francois Van der Merwe, CEO, Tobacco Institute of South Africa (TISA), took the Committee through a presentation on ITTs. He highlighted the economic contribution of the legal tobacco industry to the South African economy. The industry stimulated economy-wide production amounting to more than R54.3 billion in 2014, and supported more than 108 000 jobs in South Africa. This contributed a combined R22.4 billion in government tax revenue and R23 billion to GDP. Currently, the industry has a market value of R28.8 billion and supports 8 000 to 10 000 jobs in the agricultural sector and more than 179 000 wholesalers and retailers. All these jobs and potential government revenue was at risk if illicit trade continues. The illicit economy was growing, and this was compromising government’s health agenda as more people are smoking because illicit products are cheaper.

On TISA’s efforts to combat illicit tobacco trade, the organisation has been working with SARS to combat illicit trade and the parties formed a partnership as far back as 2005. Subsequently a project, Honey Badger was launched by SARS to tackle illicit trade, which was welcomed by TISA. But in 2014, the allegations of the so-called rogue unit started. As a result the Honey Badger project stopped. He referred to Johan van Loggerenberg’s book ‘Rogue: The Inside Story of SARS's Elite Crime-busting Unit’ which documented state capture. It was no wonder why all investigations into illicit tobacco trade stopped right there. To be frank and open, between 2014 and 2017 from the outside it seemed that SARS did nothing on illicit trade. It was a time for illicit traders to make money. However, since last year TISA has been working to rebuild its relationship with SARS to crack down on illicit trade. He also referred to Jacques Pauw’s book ‘The President’s Keepers’ which “explicitly explains” the role of tobacco companies in state capture.

Mr Van der Merwe further indicated billions of government were lost as a result of illicit financial trade. He pointed out that SARS should collect R17.85 tax, (R15.52 in excise duties and R2.33 in VAT) per packet of cigarettes for the 2018/19 year, based on the national budget. This meant, a pack of cigarettes selling for less should sound alarm bells. The tobacco industry had shrunk by 20% over five years (between 2012 and 2017). This however did not mean that people have reduced consumption; they may be consuming illegal cigarettes. Further, the loss to the fiscus according to TISA research between 2010 and 2016 was over R27 billion. This was at least R5 billion per year, or 10% required to plug government’s revenue shortfall of R50 billion. This was having a negative impact on jobs, with 8 000 to 10 000 jobs of farm workers and their 30 000 to 35 000 dependents.

Interpol had found that the illicit cigarette trade funds criminal networks to human trafficking, weapons and drug smuggling or terrorist activities. It was SARS’ mandate and other law enforcement agencies such as the National Prosecuting Authority and Hawks to come down hard on illicit trade. Also, TISA was willing to partner with government. TISA could solve illicit trade, but can help and support government agencies and could do it in a spirited partnership. Although SARS was forming long-term solutions, a short-term solution would be to place custom officials in all factories in the country. There was need for action now, otherwise two years from now the tobacco industry would be gone. The whole market will be supplied by illicit products. In addition, Cabinet had on 25 April 2018 approved a new Tobacco Control Bill for public comment. From statements made in the media by the Minister of Health, the legislative proposals were extreme and may even exacerbate the current high levels of illicit trade. Therefore, TISA’s appeal to government and Parliament was to first deal with the illicit trade in tobacco products before imposing further tobacco control legislation. If illicit trade is not dealt with decisively, there may soon be no legal industry to regulate. He stressed that there must be political will from government to establish the fight against illicit trade as a national government priority.

Fair Trade Independent Tobacco Association input

Mr Sinenhlanhla Mnguni, Chairperson, Fair Trade Independent Tobacco Association (FITA), said illicit tobacco trade affects FITA members more than any other players in the local tobacco industry. This was compounded by the fact that the tobacco industry is monopolistic and anti-competitive firms, riddled with unethical practices for decades. Counterfeit tobacco products were also a huge challenge in South Africa. He spoke of the discovery of illegitimate but sophisticated factories in Lesotho and Zimbabwe, counterfeiting FITA member brands then smuggling them into the country. Dealing with porous borders was thus an issue which the organisation was in continual discussion with SARS on. Although FITA had taken steps using its combined resources to deal with the illicit trade malady, it was not receiving any meaningful support from government. There was no support from law enforcement agencies despite these agencies bending backwards for the foreign multinationals. FITA could thus only rely on its own resources and expertise to try tackle these challenges. He expressed FITA’s support of all efforts to tackle illicit trade, and believed a more realistic and holistic approach was required to address the losses to the fiscus of which smuggling forms a better part. The time had come for all stakeholders to deal with the challenges affecting the local tobacco industry and ensure that the playing field is levelled for all.

National Treasury presentation

Mr Mpho Legote Director; Excise Duties and Subnational Taxes: National Treasury, pointed out that an increase in illicit trade in tobacco products not only impacts on the fiscus (excise tax revenue forgone), but also hampered government’s regulatory mandate as well as national public health policies. There were various estimates of extent of illicit trade in tobacco, and these would vary over time as enforcement and general business conditions improve or worsen. Illicit trade increases the accessibility and affordability of tobacco products, fuelling the tobacco epidemic and undermining tobacco control policies. It also causes substantial losses in government revenues, and at the same time contributes to the funding of transnational criminal activities.

Government was making efforts to counter illicit trade. The measures included being signatory to the World Health Organisation’s Protocol to Eliminate Illicit Trade in Tobacco Products, adopted in November 2012. The Protocol requires of Parties to adopt and implement effective measures to control or regulate the supply chain to prevent, deter, detect, investigate and prosecute illicit trade. The Department of Health was leading government process to ratify the Protocol. Further measures were being implemented and explored. For instance, the National Treasury facilitated a workshop in 2013 to deliberate on the extent of illicit trade, and in 2017 Budget, it was announced that amendments will be considered for the provisions in the Tax Administration Laws Amendment Act (2016) for the marking, tracking and tracing of tobacco products. The 2018 Budget further announced that “The National Treasury and the Department of Health will explore additional measures to reduce consumption of tobacco products, including a minimum price and stronger enforcement.” This would make it easier to enforce and clearer for the public to identify illicit products should any retailer be selling a pack of cigarettes that is less than the R15.20 excise duty. The last two years had been particularly worrying from a revenue perspective. Budget 2017 estimated revenue from domestic excise on cigarettes was R15.04 billion. However, the outcome was R11.07 billion (26% decrease). This disparity appeared to be due to increases in illicit trade- a view echoed by some in the tobacco industry. Treasury did not believe a more accommodative excise policy is warranted or would assist in reducing illicit tobacco. Instead, SARS’ capacity, particularly intelligence ought to be strengthened. There may also be need for greater co-operation with other authorities (SAPS, NPA) to target the problem. He pointed out the numerous media reports and books written on these issues and identified the need to find out if there is any substance to these allegations–the Commission of Inquiry should investigate these matters. Industry itself faces serious allegations, which may have ultimately contributed to undermining enforcement.

South African Revenue Service input

Mr Patrick Moeng, Executive: Customs Investigations, SARS, stated that SARS had been lax in efforts to clamp down on the illicit tobacco trade, but its acting commissioner Mark Kingon was resolute in changing this. He acknowledged that SARS had not done enough in the past two to three years, and more needed to be done in the field. Tobacco and cigarettes were on the top of the agenda when it came to compliance programmes the tax authority is running. To this end, SARS was in the process of sprucing up its systems and acquiring Track and Trace technology that would effectively maintain the security of the SARS revenue base and ensure the following: enhanced Tax Revenue Collections by providing business intelligence to aid officials in auditing and enforcement; assurance of declarations made by vendors; proper accountability of all excisable movement control; accurate real time production accounting; and a complete system that allows full control by SARS to securely code or mark goods. Further, in line with WHO obligations implementation of Track and Trace would: securely mark excisable goods and/or products; track and trace excisable products to the manufacturer and its production line(s), as well as importers, with coding to individual or batch level; validate manufacturer / vendor declarations; collate and directly transmit management information from the manufacturers’ production line(s) to SARS; enable traceability to distribution, point-of-sale and exit points out of South Africa; and provide audit enforcement capability to effectively identify and prosecute perpetrators within the Excise domain.

The next steps would be to adjust rules and legislation to align with adopted solutions- with Treasury approval. Relationships and engagements with government departments, industry stakeholders and other impacted parties to facilitate implementation across all products would also be crucial. Consequently, SARS was currently in the process to reconstitute a stakeholder management forum with FITA and TISA, discontinued in financial year 2016/17, meant to foster collaboration, increase compliance in the sector and enhance information flow. Notably, Tobacco and Cigarettes remained a focus area in SARS’ Compliance Programme.

Financial Intelligence Centre (FIC) input

Adv Xolisile Khanyile, Director, FIC, said FIC carries one piece of the puzzle in the fight against illicit finance.

While the FIC is not an investigative authority it supports investigations using financial intelligence generated through its analysis. In regard to combating ITT in South Africa, the predicate offence for money laundering would often be fraud (misrepresentations to prevent that necessary duties and taxes get paid). Consequently, the FIC has supported project-driven investigations relating to ITT by various law enforcement agencies (LEAs). Continuous meetings have been held with LEA investigation teams to understand their requirements to enable FIC to better support investigations. Based on matters handled by the FIC, it has been observed that both local and foreign nationals were involved in the ITT. The main perpetrators of smuggling of cigarettes in SA (operating on different levels in the value chain) were locals, foreigners and local tobacco manufacturers. The agencies with which the FIC worked closely on these matters were; SARS, Hawks, State Security Agency, and South African Reserve Bank’s Financial Surveillance. She expressed FIC’s commitment to continue engaging all stakeholders to counter the threat of organised crime, particularly ITT.  

Hawks input

Major-General Alfred Khana, Directorate for Priority Crime Investigations (Hawks), said tax evasion was at the heart of illicit tobacco trade. There is non-reporting of income through the vehicle of illicit tobacco trade. He explained that legitimate businesses were operating as a front to trade illicit tobacco from “specific” countries. He added that allegations of cigarettes manufactured in Lesotho and Zimbabwe illegitimately being brought into South Africa have not been reported to the Hawks. The South African Police Service (SAPS) does not have the capacity or manpower to check cigarette prices in stores. There are stores selling cigarettes as cheap as R10, when the tax on these boxes is over R17. However, the Hawks has the capacity to deal with criminal syndicates. He suggested that industry bodies TISA and the Fair-Trade Independent Tobacco Association (FTIA) get manufacturers audited to determine how many cigarettes are sold and how much revenue is generated. This would determine the tax liability. Furthermore, the Hawks would willingly investigate tax evasion reported to them, but found problems with the interpretation of section 4 of the SARS Act, which deals with protection of information. The Hawks found it could not carry out investigations because SARS officials cannot share information on taxpayers. He indicated he had wrote to the Law Reform Commission to provide guidance on the interpretation of the section. He emphasised the need to well-regulate the tobacco industry. Stakeholders had to come together and deal with the challenge more decisively.

National Prosecuting Unit input

Adv Malini Govender, Specialised Commercial Crimes Unit, National Prosecuting Authority (NPA), said the NPA has been dealing with illicit traders since its inception, with the oldest case on the matter dating back to 2000. The NPA established a specialised tax unit in conjunction with SARS in 2003, which deals with criminal matters affecting revenue of the country. The role of the NPA was to provide guidance for investigations and not necessarily to conduct investigations. The NPA relied on investigations by SARS and SAPS before dealing with the prosecution of cases. In 2017, 124 cases were referred to the NPA, 43 had been finalised with guilty outcomes, and other cases were still being litigated on. The matters were "highly litigated" on and are complex given cross border involvement, involvement of foreigners as runners and cost analysis in terms of the cost to the economy. She also called on more collaboration between government departments, such as SARS, SAPS, the NPA and even Home Affairs as there is a foreign element to illicit trade. Departments should also set joint targets, because each is seeking different outcomes. The NPA, for example, has an objective to achieve convictions, while SARS has an objective to recover revenue. She added that there is a benefit of having joint operations to address organised crime and corruption relating to the tax system.

Adv Govender referred to estimates that SA ranked among the top five countries in the world with the highest incidence of trade in illicit cigarettes, along with Malaysia, Iraq, Brazil and Pakistan. She noted that the profit margin on the illicit trade was very high. The illicit trade was a trans-national problem involving neighbouring countries and required effective collaboration in the region to prevent consignments crossing SA’s borders. The porous nature of South African borders and the element of corruption [in allowing] consignments to pass were factors which act as enablers. Therefore, collaboration with the private sector and within the criminal justice sector was also required. Together with the various stakeholders a tiered approach would have to be adopted based on best practices observed. Some of these were: use of civil penalties involving smaller consignments and where foreigners are involved; establishment of a joint operational committee on the illicit trade in tobacco products; identification of organised crime and/or corrupt officials for purposes of prioritisation of investigations and prosecutions; identification of the modus operandi and addressing with specific joint operations; and better sharing of information and joint target setting. The NPA provides a dedicated capacity to the Hawks and SARS in tax, organised crime and commercial crime which traverses the areas of illicit trade. The NPA was also in the process of finalising a memorandum of understanding with SARS which would endeavour to improve collaboration, joint target setting and operations in joint priority focus areas.

Discussion

Ms T Tobias (ANC) pointed out that laundered money could not be swiftly identified by FIC as it did not usually go through proper channels. She expressed concern about the border management authority. It should be adequately capacitated with excise tax collection expertise. She added the secrecy clauses of the Taxation Laws must not be an impediment to identifying wrongdoing.

Mr D Maynier (DA) said it was clear there primarily was an enforcement problem in the fight against ITT. Part of the problem was the coordination between law enforcement agencies and capacity constraints. He asked whether the reestablishment of the Scorpions, which applied a joint approach in its fight against priority crimes, would assist in combating ITT. On capacity, what was SARS’ staff complement and yearly budget for tackling ITT? He underscored the need for an effective intelligence capacity within SARS. Does SARS have an intelligence capacity? If not, then how and who was gathering intelligence on tobacco flows. He asked if a project similar to Honey Badger was currently underway.

Ms G Ngwenya (DA) believed there was little coordination among stakeholders, and a failure to identify what the real problems were. She asked for a comparative scale of the ITT problem. There should be a clear sense as to where the bleed and the real problem was.  Was there no real data on counterfeited goods and other problems identified? What were the challenges impeding the establishment of coordination forums between the various stakeholders?

The Chairperson said the money being lost through illicit flows was needed more than ever. He made reference to media reports of SARS being accused of being complicit in ITT. There were allegations that some stakeholders are paid functionaries; being paid by the wrongdoers. He asked the Committee research staff to establish the veracity of these claims and revert back to the Committee by August. He emphasised the need to establish an inter-ministerial committee to deal with ITT of which the Committee must also have the capacity to exercise oversight on same. From what Members could tell, there was more than enough scope for law enforcement agencies to act on ITT. However, if there was need for more legislation, what role could Parliament play to assist? The Committee would make effort to meet in November or early next year to hear about progress. In the interim, the criminal justice system should be seen throwing serial transgressors into jail, and the revenue due to the people of this country should be collected by SARS. Also, nothing stopped the Hawks from operating like the Scorpions by carrying out prosecution-driven investigations. He asked whether stakeholders had a clear coordinative structure as there seemed not to be a collective approach in dealing with ITT.

Mr Moeng, in response, said Project Honey Badger had not been abandoned. SARS continues to clamp down on illicit trade, not just in the tobacco industry but in clothing and textiles, construction and high net worth individuals as well. It was not as if SARS was awaking from a slumber. The revenue service has always put its finger on illicit trade. Since the 2014/15 year to 2017/18, SARS had conducted 1 368 seizure operations, where 270 million cigarette sticks to the value of R217 million were collected. He agreed that SARS could increase efforts to work with other government departments to stop illicit trade in the industry.

Mr Chris Axelson, Director: Personal Income Taxes and Savings, National Treasury, reiterated Treasury’s position that there must be an increase in capacity granted to SARS and other enforcement agencies to tackle ITT. There should also be better cooperation between SARS, the South African Police Service and the National Prosecuting Authority. The big issue was the need to get to the bottom of the allegations as identified by the Chairperson. The inquiry into SARS needed to look into this and find out what actually happened. He added Treasury was happy to set legislative framework in place but in terms of enforcement other institutions must be relied on.

Mr Van der Merwe further pointed out that at least a quarter of the cigarette market in South Africa is illicit, resulting in significant losses to the fiscus. One of the consequences of tax manipulation by certain players was that the legal, tax-compliant tobacco sector is losing market share to the illegal sector at an alarming rate. At least a quarter of the cigarette market in SA is illicit with certain channels selling 50% to 100% of illicit products.

Mr Mnguni commented that billions of rand were being pilfered out of the economy by a group of companies through base erosion and profit-shifting schemes. He believed government should afford more attention to levelling the tobacco industry playing field to ensure small businesses also have a voice.

The Chairperson called on the National Treasury, through the Minister of Finance, to co-ordinate a team that would help the inter-ministerial committee on illicit financial flows to do its work. He reiterated the need for effective co-ordination to combat the illicit tobacco trade. A robust structure with a clear strategy was needed.

The meeting was adjourned.