Editor’s Introduction
It’s estimated that 60% of cigarette sales in South Africa are illegal. And because of law enforcement’s lack of capacity, the problem is only going to get worse. Could this hold true for the future of cannabis as well? Even though Government is putting together a framework for commercial trade, there’s no guarantee that the market will accept it – and the taxes that go with being compliant.
If the tobacco industry is anything to go by, perhaps the future isn’t all about compliance. The capacity to enforce compliance by law enforcement authorities at any level appears to be under erosion.
This Report by Former Business Day and Financial Mail Editor Tim Cohen
The deep lessons of the smoking industry concern economics. The economic questions at issue are the concept of unintended consequences, and the efficacy of state power in influencing citizen activity. Neither of these are small things. For example “unintended consequences” seem so benign, a bit like you accidentally spilt some milk on the way to filling your tea cup.
But “unintended consequences” is actually a euphemism for a right, royal fuck up, and that is what we have in South Africa. We have a government of overarching righteousness which has no compunction in instructing its constituents what is good for us, combined with the economic understanding of a cigarette stompie. That combination doesn’t just apply to cigarettes; it applies lots of other things, but particularly this little sector.
Allow me to explain. Since 1964, we have known that cigarettes are bad for you. According to the World Health Organisation (WHO), tobacco remains a top cause of preventable death, responsible for over eight million deaths per year. Still, over 1.1 billion people smoke worldwide, the WHO says, although this number is slowly coming down as governments campaign in various ways against smoking. Roughly one in three adults smoke today, which is down from one in five about a decade ago when the global campaign against smoking really started to take off in earnest. The campaigns started in developed countries, and they have been pretty effective: about 80% of smokers now live in low- and middle-income countries. About 25% of Chinese adults smoke, for example, compared to about 20% in Europe.
The techniques used by governments to stop people smoking have been more or less the same everywhere: bans on advertising, bans on smoking in bars and restaurants and public places, higher taxes, graphic warning labels, litigation and regulation. So one question is this: has the concerted government-led campaign against smoking worked?
Clearly it had an effect, but is this effect higher or lower than you might expect? It’s a difficult question – you could argue both directions. My own impression is that despite the drop-off, governments must be disappointed at the results. These are perhaps the most forceful, determined and oppressive regulations ever applied to any sector of the economy – and the effect has been to change the behaviour of 40% of users. Is that a good outcome? I don’t think so. And you can see that in the fact that the government’s own targets for future smoking rates now seems unlikely to be met based on current trends.
And when I say “government targets” I don’t mean the targets of everybody in government because the incentives differ. For example, in China, the theoretical national goal is to reduce adult smoking prevalence to 20% by 2030. But the China National Tobacco Corporation, which is state-owned controls around 96% of the domestic market and contributes roughly 7% of government revenue. And this is a more generalised problem. As governments have increased taxes on cigarettes, they have unwittingly increased their own incentive to not apply their own laws as aggressively as their health departments would prefer.
Despite Government’s Best Efforts, More South Africans Are Smoking
But South Africa is unusual in many respects. First, it already has tough anti-smoking laws on the statute book comparable with developed world norms. However, this is apparently not good enough, and the laws are being further strengthened with the Tobacco Products and Electronic Delivery System Control Bill, which is currently before parliament. And here is the oddity: despite all this righteous public activity, smoking is actually increasing in SA. I am not making this up.
The fact that smoking is increasing is being used as a justification for the harsher legislation which will take brands off cigarettes entirely, and force them under the counter in supermarkets and shops. But actually, the fact that smoking is increasing is justification for doing the precise opposite. The reason smoking is increasing is that research shows the main reason why people started to cut back on smoking before the most recent increase is because it’s just getting too expensive. But in SA, because there is effectively no enforcement of the existing legislation, never mind what is likely in the more forceful version, the market is gradually being taken over by illegal producers, mainly from Zimbabwe.
And they are, by the way, making absolute fortunes. We know this because the legitimate industry keeps on monitoring the market, and its sales are massively decreasing. They estimate that about 60% of the market is now underground, in the sense that its doesn’t pay its full tax obligations.
Wednesday, 16 July 2025 – Tax Justice SA today welcomes the Government’s acknowledgment of the devastating scale of the illicit cigarette trade and urges authorities to now crack down on the crime syndicates behind this menace that is robbing the country of R28 billion a year.
Yusuf Abramjee, tireless campaigner against crime in SA and member of Tax Justice SA, claims that illicit cigarettes are now sold in 76.6% of stores – almost triple the rate from three years ago. This is costing the country R250-million per day. Just to emphasise, that per day.
Surely, you might ask, the South African government has a huge incentive to fix this problem; the R28 billion a year could double what the government spends on the Covid grant for example. It’s around half the Defence Budget. And yet it does nothing? Not a single person has been arrested for violating the tax laws, Abramjee points out. Why?
Honestly I don’t know. Abramjee says, “We’re witnessing the complete collapse of tax compliance in the tobacco sector. These aren’t just regulatory violations – this is organised crime on an industrial scale, stealing money needed for schools, hospitals and social services”.
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