Moyane ‘helped small tobacco firms dodge R7bn a year in taxes’

Major tobacco companies today accused three small peers of conducting R5 billion in illegal cigarette sales a year and dodging annual excise taxes of almost R7 billion in the process.

This was made possible by the South African Revenue Service’s conscious decision to stop inspections at tobacco factories under now-suspended commissioner Tom Moyane in 2015, claim the companies, who are organised under the Tobacco Institute of South Africa (Tisa).

Tisa today released a new research report claiming to make the best estimate yet of the size of the illicit cigarette trade in South Africa.

The estimate is 8 billion cigarettes a year, equivalent to 400 million packs of 20.

It names three companies as the major culprits: Gold Leaf Tobacco Company, Best Tobacco Company and Amalgamated Tobacco Manufacturers – which counts Edward Zuma, the son of former president Jacob Zuma, as a director.

Gold Leaf’s cigarettes comprise a staggering 75% of the entire illicit cigarette trade, claims the report commissioned from the international consumer research group Ipsos.

Gold Leaf operates out of buildings in Johannesburg’s Linbro Park light industiral area that proudly display its brands on the outside walls. Its directors are Johannesburg-based Ebrahim Ahmed Adamjee and controversial Zimbabwean Simon George Wilburn Rudland.

Rudland and Adamjee have been in trouble for illicit cigarettes before and were both arrested in 2006 after a raid on their businesses by the then-Scorpions.

Big tobacco companies have accused smalled producers of dodging excise taxes of almost R7 billion. They say it was made possible because the South African Revenue Service, under Tom Moyane, decided to stop inspections at factories. Picture: iStock

The report counts as “illicit” or untaxed any pack of 20 cigarettes selling for less than R17.85 – the sin tax plus VAT payable on a pack of cigarettes in South Africa this year.

The reasoning is that anyone selling cigarettes for less than the tax on those cigarettes, let alone the cost of production, must be dodging the tax.

The RG brand sold by Gold Leaf is sold at an average of R10.50 a pack, according to the research.

RG is estimated to be the second-largest cigarette brand in South Africa.

Gold Leaf was barred from selling these cigarettes in Zimbabwe in 2016 after a copyright case brought by the owners of the well-known Remington Gold brand of cigarettes challenged its use of the acronym RG.

Rudland at the time argued that “RG” is his initials even though Rudland is his surname and George one of his first names.

Gold Leaf’s Savannah brand is accused of being the second most popular illict cigarette.

The third most popular illicit brand, according to Tisa, is Ceasar which is distributed by Best Tobacco. The fourth most popular brand is Sharp!, another Gold Leaf brand.

Tisa adds that cigarettes retailing for more than the sin tax amount may very well also be evading the tax, but that there is no easy rule of thumb to determine this one way or the other.

This would arguably make the estimate of the illegal trade conservative.

Tisa’s rule for identifying cigarettes as illicit has been unsuccessfully challenged by companies tied to the owner of Amalgamated Tobacco alongside Zuma, Yusuf Kajee.

Amalgamated’s brand portfolio collectively makes it the third largest dealer in illicit cigarettes, claims Tisa.

Kajee companies CK Tobacco Distributors and CK Tobacco Trading as well as a rival lobby group the Cigarette Institute of South Africa had distributed pamphlets to retailers last year claiming that you could sell cigarettes for less than the tax amount legally.

This pamphlet however used a sleight of hand by effectively claiming you could sell a pack of 10 cigarettes for less than the tax on a pack of 20 cigarettes, which is obviously true.

On the basis of that, the alleged illicit traders argued that a “product” could be sold for less than the sin tax level without explicitly saying which product it meant.

British American Tobacco (BAT) launched a case at the Advertising Standards Authority that this was misleading and inaccurate. The ASA agreed.

In a press release issued today Tisa pointed out the recent testimony of former Sars head of enforcement Gene Ravele at the Nugent Inquiry into the revenue service.

Ravele claimed that, under Moyane, tobacco companies were intentionally allowed to get away with tax evasion by virtue of Sars stopping inspections.

“If you stop inspections, people are going to do as they wish,” said Ravele.