Up in smoke: Roughly R35m in tobacco tax revenues lost daily during South Africa’s lockdown

Comments 3

Claim

South Africa is losing R35 million every day in tax revenue because of the ban on cigarettes.

Source: Yusuf Abramjee, founder of Tax Justice South Africa (29 April 2020)

mostly-correct

Verdict

Explainer: Excise tax revenues for tobacco sales in April 2020, the first full month of the Covid-19 lockdown, were down more than R36 million daily compared to April 2019.

  • Speaking in a video shared on Twitter, Abramjee said South Africa was losing R35 million daily because of the ban on cigarettes. 
  • Daily average tobacco taxes vary month to month because of the cigarette industry’s sales practices, but the average for the 2019/20 financial year was about R40 million per day.
  • In April 2020, the revenue service collected an average of R31 million daily, which was R36.2 million less than in April 2019, and R60.5 million less than April 2018.


Smokers in South Africa are grumpy. The sale of tobacco products has been banned in the country since a national lockdown was implemented on 27 March 2020 to better prepare the country to deal with Covid-19

More than 600,000 people have signed a petition to have the ban lifted, and tobacco producers have gone to court. Researchers have also suggested that the ban has encouraged the illegal cigarette trade.

Yusuf Abramjee, a former journalist and founder of advocacy group Tax Justice South Africa, is one of those opposing the ban. He has links to the tobacco industry, having previously been paid by the Tobacco Institute of South Africa to post online about the tax revenue lost due to illicit cigarettes. 

He is now claiming that the tobacco ban has caused a significant drop in tax revenue. 

“It’s a well known fact that South Africa is losing R35 million each and every day because of the ban on cigarettes,” he said in a video shared on Twitter on 29 April 2020, which has been viewed over 16,000 times. 

We checked if there was evidence to support his claim.

Average tobacco taxes R34 mil per day in 2018/19

Abramjee told Africa Check that the figure was “based on the government’s receipts across all tobacco products in 2018/19”. 

The budget document from the national treasury he shared shows excise tax revenue on all tobacco products of just over R12.5 billion for that financial year. This produces an average of a little more than R34 million per day. This was the latest data available when he made his claim. (Note: Excise duties are a form of tax on certain high-volume daily consumable products, like tobacco and alcohol.)

More recent data was released by the South African Revenue Service (SARS) the day after Abramjee made his claim. It shows that just under R14.5 billion was collected in excise taxes between April 2019 and March 2020. This makes for an average of around R40 million per day.

Does this reflect the amount of tax lost “each and every” day during the lockdown?

Tobacco excise tax varies throughout a year

Africa Check spoke to Prof Corné van Walbeek, director of the Research Unit on the Economics of Excisable Products at the University of Cape Town. He said the amount of tobacco excise tax collected varies throughout a year.

A simple calculation suggests an average of R34 million was collected per day between April 2018 and March 2019. The figure was an average of R40 million for the financial year April 2019 to March 2020. These figures vary depending on when and how tobacco companies release their products into the market or sell to retailers. 

The South African government announces tax increases in the annual budget speech, usually in February. Van Walbeek said tobacco companies declare most of their stock just before the announcement to avoid paying the higher rate.

“Shortly after the tax increase they push very few cigarettes into the market.”

This can be seen in the most recent figures. In May 2019, SARS reported collecting a daily average of R12 million in tobacco taxes. In January 2020, the month before the budget speech, they collected an average of R95 million per day.


Van Walbeek said this variation would make Abramjee’s claim less accurate in the first few months of the ban but it would grow more accurate as time passes. This is because the daily losses will get closer to the average the longer the ban is enforced.

Most recent data corroborates claim

After Abramjee made his claim, South Africa’s treasury released the first month of data for the financial year running from April 2020 to March 2021. It showed that they anticipate collecting nearly R15 billion of tobacco excise taxes over the financial year.

In April 2020 – the first full month of the lockdown – SARS collected just under R936 milion, around R31 million per day. This is R36.2 million less than the daily average collected in April 2019 and R60.5 million less than the daily average collected in April 2018.

SARS told Africa Check this revenue was collected for tobacco products manufactured in February and March 2020, before the ban was enforced. 

Taxes are not charged when a customer purchases a pack of cigarettes, Dr Evan Blecher, an economist of fiscal policies for health at the World Health Organization, explained to us. The tax is charged when the cigarettes are sold to retailers by the manufacturer. 

“Excise taxes are charged at the factory gate, so any stockpiling by retailers or consumers could have softened the revenue blow in the very short term.”

Conclusion: Abramjee is mostly correct, although tobacco tax collection varies significantly

Yusuf Abramjee, founder of advocacy group Tax Justice South Africa, claimed that the country loses “R35 million each and every day” due to the ban of tobacco sales enforced during the Covid-19 lockdown. 

The data Abramjee had access to when he made the claim shows that R34 million in tobacco excise tax was collected on average every day in the last financial year. The actual amount collected each month varies significantly due to when tax is paid by manufacturers. 

Data released after Abramjee made his claim showed that the daily amount of tobacco tax collected in the first full month of lockdown, April 2020, was down R36.2 million per day compared to April 2019 and R60.5 million per day compared to April 2018.

As the ban continues, monthly variation in tax collection will have less of an effect and Abramjee’s estimate will become more accurate. We rate it “mostly correct”.

New numbers released by revenue service

Two days after Abramjee made his claim it was reported that SARS had estimated under-recovery of roughly R400 million in “cigarette” excise taxes during the first 29 days of April. This is under-recovery of just under R14 million a day. 

Africa Check sent numerous requests to SARS seeking clarity on how this figure was calculated and what it included. The tax agency informed us that aside from publicly available tax information it would “be unable to provide any additional information until we have completed our own internal processes”.

Van Walbeek said he could “only speculate” on how SARS calculated the figure, as they would have access to information not publicly available.

These figures were, however, not in the public domain when Abramjee made his statement. 

 

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Comment on this report

Comments 3
  1. By Geoffrey Lovett

    Interesting that only the direct tax loss relating to the ban on cigarettes is raised.
    It is important to note that tens of millions of rands have changed hands in the form of cash payments for illicit cigarettes and none of this will be declared as income by the sellers and is therefore income not taxed.

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  2. By Patricia Oliver

    The ban of tobacco has lost revenue and people’s jobs who are also the breadwinner of there families. This is really ludicrous, how can the government stop our smoking it is unconstitutional. SOUTH AFRICA NEEDS THE REVENUE

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