Africa Presentation to Standing Committee on Finance 02 May 2018 DISCLAIMER Figures and statistics referred to ID: 811159
Download The PPT/PDF document "The Tobacco Institute of Southern" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
The Tobacco Institute of Southern Africa______________________________________________________________________________
Presentation to Standing Committee on Finance 02 May 2018
DISCLAIMER:
Figures
and statistics referred to
in this presentation, represents
an industry view based on external research and publicly available
market
information. The definition of “illicit trade” for purposes of this document includes any product sold to consumers below R17,85, and/or being non-compliant to the Tobacco Products Control Act, No 83 of 1993 (as amended). The various brands referred to herein are assumed to be manufactured and /or distributed by the corporate entities who publicly claim to do so. TISA accepts no responsibility or liability whatsoever with regard to the information or statistics quoted incorrectly or out of context from this presentation by any person.
Slide2TISA Scope & MandateTISA is the industry body for the legal tobacco sector in SA; mandate extends into the South Africa Customs Union (SACU) region.TISA represents farmers, leaf processors, leaf merchants, manufacturers,
importers and exporters of all tobacco products; in the legally compliant industry. Clear distinction between legal and illegal industry
Strategic
objectives:Regulation
(secure a reasonable regulatory framework
for the sector)
Illicit Trade
(strategy to bring down illicit rates in cooperation with
Govt
)
To ensure the sustainability of
tobacco
sector, including farmers.
TISA believes in public/private partnerships to achieve objectives for the
Govt
(NDP), the sector and SA
pty
ltd,
on the basis of trust, mutual respect and good relationships.
Slide3The impact of TISA members’ total interests on the South African economy 2014TISA Members stimulate economy-wide production of amounting to more than R54.3 billionSupported 108,475 jobs in SACombined contribution of R22.4 billion in government tax revenueCombined contribution of R23.0 billion to SA’s GDPFor every R100 of tobacco product sales, the SA economy realises a GDP gain of R121A 1% increase in the output or production of the tobacco sector results in a 0.7% increase in aggregate GDP
Slide4The tobacco sector’s contribution to the economyDirectly supports 8,000 - 10,000 in the agricultural sectorGenerates returns of more than R568 million annually for tobacco farmersHas a market valuation of R28.8 billionPays over R17.2 billion annually to the government in the form of excise and value-added taxExports tobacco products to the value of R 2.6 billion annually to various countriesSupports 179,532 wholesalers and retailers
Slide52005 Strat sessions around a SARS / TISA (Tobacco Industry) Forum commenced. 2006SARS/TISA Forum officially launched in August 2006. Non-TISA players from the industry were also invited to attend these meetings. SARS developed an internal Tobacco Strategy in 2006 which was presented to the SARS / TISA Forum. Part of this strategy included a proposal to replace the current SA diamond stamp:
2009On 13 October 2009 the SARS Forum mandated TISA to run a pilot based on new technology to replace the diamond stamp. Overview – TISA / SARS Engagement
Slide62010 - 2011
The pilot ran in 2010. Transparent
project overseen by TISA and SARS. Results were presented to various SARS
delegations 2010/2011 at the factory and at SARS, including Exco
.
Budget Speech 2011, Finance Minister, Pravin Gordhan:
“We are also, in conjunction with the tobacco industry, investigating a new method of marking and authenticating legal cigarettes with a counterfeit-proof digital system to replace the current “diamond mark
”.
The technology
was mostly accepted by SARS. Then, Ministry of Health intervened – a solution from industry was not acceptable.
Slide72013 TISA received a Merit Award from World Customs Organisation in 2013. “For rendering exceptional service to the international customs community” SARS referred many times to TISA as setting an example of how public/private partnership should be conducted.
Over the years, TISA assisted SARS with:
Destruction of illicit tobacco products
Cross-border liaison / MoUs
Operational: Customs ops meetingsIndependent research and market information
Inspection of alleged illicit product / affidavitsInformation sessions / training manual
Slide82013 - “Project Honey Badger” SARS was preparing to seriously take action on the illicit traders.SARS letters to Industry, November 2013, announcing Project “Honey Badger”. (JvL)
2014“Rogue unit” allegations in 2014. Sept 2014 – New SARS Commissioner appointed.Oct 2014 – SARS specialised unit closed down. All cases the specialised unit were working on seemed to come to a grinding halt.
From outside, it seemed if not much happened in SARS in dealing with illicit cigarette trade from 2014 to 2017.
Role of certain tobacco companies well documented in book by
JvL.
Slide92017TISA initiated efforts to re-establish working relationship with SARS. Jacques Pauw book published end of 2017: “The President’s Keepers” – sheds further light on certain cigarette manufacturing companies’ close involvement in alleged state capture.November - TISA Submission to Treasury / SARS: Digital Tax Verification System with T&T capabilities: A
digital solution based on open standards.2018Further meetings and discussions between TISA and SARS.
First formal, broader
SARS/TISA meeting today, 14 March 2018
.
Slide10Illicit Trade: Understanding the ProblemCounterfeit, non-compliant, Duty not PaidIs the product compliant with National Health Regulations?
No
Yes
Is the product sold below the
MCT (minimum collectable tax)
Yes, requires investigation
R
17-85/20
Slide11Illicit Trade in Tobacco Products in SAIndependent Research shows that at least ¼ of the market is illicit, in certain channels of the market 50%-100% is illicit, flooded with cheap products selling below R10 and as low as R5/pack Until 5-6 years ago, cross-border smuggling was the main contributor to illicit trade, but currently almost 90% of the illicit trade in SA is due to excise manipulation / part-declaration by local manufacturers. (honesty based system in SA, duty at source)For 2018/19, the MCT is R 17.85 (R 15.52 excise plus R 2.33 VAT): Up 8.5% on previous year.
TISA cigarette volumes declined by 20.6% from 2012-2017 OTP (other tobacco products) experiencing decline and illegal competition due to illicit operators.
Slide12Some cigarette brands found in the informal sectorSource: Sustainable Livelihoods Foundationhttp://livelihoods.org.za/projects/competition-in-the-informal-grocery-retail-sectorCounterfeit matchesSource: Sustainable Livelihoods Foundation
Above and below:Examples of brands members of the public report to TISA selling at below MCT.R10.00R14.50
Slide13Illicit tobacco in SA Illicit cigarette volumes (million sticks) and incidence This illicit market undermines the legal tobacco value chain’s investment, and significantly deprives the government of revenue.
Slide14The cost to SA Fiscus of illicit tobaccoEstimated loss to the Fiscus (Excise and VAT, Rand millions) Between 2010 and 2016, the loss amounts to over R27 billion.
Slide15Impact of the Illicit Trade in Tobacco ProductsFiscal ImpactBetween 2010 and 2016, the fiscus lost R27 billion due to the illicit trade in tobacco products.At least R5bn pa, or 10% of Govt shortfall of R50bn
Apart from Excise, also VAT, company tax, personal income tax etc etc.Social impactCompromises the government’s health agenda:
M
arket flooded with cheap, non-duty paid cigarettes;
Non-compliant with tar & nicotine regulations, etc.; no quality controlThreat to jobs, especially in deep rural areas, e.g.
8000 – 10 000 tobacco farm workers with 30 000 to 35 000 dependants
155 emerging tobacco farmers planting tobacco and food crops, promoting food security
Fuelling
Organised
Crime and Corruption
Interpol has found that the illicit cigarette trade funds criminal networks of human trafficking, weapons and drug smuggling or terrorist activities.
Slide16TISA Expectations and Offer of Assistance to combat illicit trade in tobacco products TISA cannot act against illicit traders – this is the mandate of SARS and other law enforcement agencies.Partnership between TISA and Govt only way to eradicate illicit trade.Currently
, almost 90% of illicit cigarettes sold in SA are manufactured locally. The mandate to act therefore lies squarely in the domain of SARS. Proposals:
Short-term:
Place customs officials in all cigarette manufacturing plants to monitor inputs
(e.g. RIP cigarette paper; filter tow; packaging material; tobacco) vs output
(total cigarettes produced and declared).
Urgent attention to
Minimum pricing and stronger enforcement
proposed by the Minister of
Finance in budget speech.
Stable Excise regime
– higher excise stimulates illicit directly
Slide17Prioritise
the process of
replacing the diamond stamp by
new technology.
Requirements
from TISA re new technology:
Digital marker (not paper-based
)
Based on open standards, interoperable, cross sectoral, non-
proprietal
,
Capability to perform
digital volume verification,
authentication and track & trace.
Must be under SARS control
Must be affordable
Participation by industry
Independent 3
rd
Party Illicit
Trade Research
–
Commissioned by TISA:
New read of the illicit market expected around June/July 2018.
TISA will share this information with SARS and other law enforcement agencies.
TISA
Training offer to
SARS
: Training manual plus farm to factory visits/sessions.
Custom-made mobile hammer mills
for the destruction of illicit cigarettes. TISA continues to receive requests for destructions.
TISA Expectations and
Offer of Assistance to combat illicit trade in tobacco products
Slide18Slide19Closing RemarksPolitical will from Govt to establish the fight against illicit trade as a national government priority. Oversight role by parliament. Report to Committee about actions on illicit tobacco trade. Partnership between legal industry and Government only way to address illicit trade activities.
Slide20Closing RemarksAdministrative Controls - SARSExcise controls – Digital Product Marking/Verification and end to end Audits. Enforcement Increased cross-discipline resourcing and / or dedicated law enforcement. Increased product seizure, asset forfeiture and investigations leading to kingpins. Prosecutions
Bringing greater urgency and resourcing to registration and completion of investigations and prosecution of major role players. Greater alignment from interdependent functions to drive prosecutions to effective completion.
Slide21Cabinet has on 25 April 2018 approved a new tobacco control bill for public comment. From statements made in the media by the Honourable Minister of Health, the legislative proposals are extreme and may even exacerbate the current high levels of illicit trade.
Our appeal to Government and Parliament is 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.
Closing Remarks
Slide22We thank Honourable Members for this opportunity and wish you well with your very important work in the interest of our country and its people.