Black-market smokes hurt us two ways

Recent studies claim the prevalence of smoking has dropped dramatically, to 16.4% of adults from 22% five years ago.

Maybe that’s true among privileged South Africans. Others say smoking has increased due to the sale of 340-million packs of illegally imported cigarettes, primarily from Zimbabwe.

Sin tax from cigarettes is budgeted to increase to R11.46bn in the 2013/14 tax year. At R10.92 sin tax per pack, that’s 1.05-billion packs or 21-billion cigarettes. If 340-million illegally imported packs (6.8-billion cigarettes) were taxed, that would be raise sin tax by R3.7bn, excluding VAT — which would be nearly another R1bn.

How do you know if you are smoking illegal cigarettes? “That’s easy,” say my motley fishing crew. “If they taste like sh*t, they’re from Zim!”

Discount offers on legal cigarettes are as low as R20 a pack. Strip out the casino online VAT (R2.45) and sin tax (R10.92) and that means the production and distribution chain got R6.63 for the pack. How that can be profitable is beyond the imagination.

Lowering the sin tax on legal cigarettes won’t help if, as my motley crew tell me, cartons of 10 packs are available for less than R100. Will new, stricter smoking regulations help? Maybe in privileged areas. But imagine an inspector dishing out smoking fines in a township. Only Leon Schuster would try that stunt.

So why can the South African Revenue Service not stamp on the problem? Answer: we cannot control our borders. There are millions of subsistence businesses supplying millions of consumers hammered by the decline in the economy and dying for a smoke. That’s the perfect environment for contraband activity.

Smokers jest that their taxes pay to fix potholes and at least they will not become a burden on the state when they are pensioners. Maybe that’s true with 42-million South Africans having no private healthcare. They will die in the hospital queues.

But now, apparently, a third of smokers do it tax-free. Many will become a burden on the promised National Health Insurance scheme — something South Africa cannot afford.

Originally published in the Sunday Times: Money & Careers Tax Talk column.

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