Saturday, December 4, 2021

Tobacco control bill to boost illicit cigarette trade

The tobacco industry is reportedly bracing for a hike in cigarette prices, which is expected to effect once Botswana starts implementing the Tobacco Control Bill 2021. The bill was pushed through earlier this year despite protestations about lack of consultation from the business community and opposition Members of Parliament (MPs).

A key section of the Bill – PART VII (45) (1) – restricts the sale of cigarettes to sealed packs of at least 20 sticks. This has raised consternation within the tobacco industry, with many arguing that such a decision will destroy livelihoods and exacerbate the proliferation of illicit cigarettes in the market. Tobacco industry players insist that Botswana is a highly informal trade economy in which traders make a living from the sale of single cigarette sticks.

“Adults smokers who cannot afford packs of 20 will obviously buy products on the illicit market,” they said.

Their fears are worsened by the fact that, even today, illicit cigarettes can be easily bought at relatively lower prices from any street vendor and the average corner store. Worse, the tobacco industry has not fully recovered from loss of income during the Covid-19 pandemic, when governments imposed a wholesale ban on cigarette sales. Despite the ban, Botswana Police recorded a spike in illicit cigarette trade by national and international criminal enterprises.

In April 2020, at the height of the Covid-19 movement restrictions and ban on cigarette sales, Botswana Police arrested a 36-year-old Malawian man after he was found in possession of illegal cigarettes worth P168,000. The Police had been tipped off that the man was illegally selling cigarettes from his home in Kopong. At the time, Botswana Police Spokesman Assistant Commissioner Dipheko Motube said they were baffled as to how the man managed to smuggle the cigarettes from Zimbabwe while Botswana was on lockdown with stern restrictions on cross border movements. In June 2021, South African police arrested a truck driver for possession of illicit cigarettes worth more than R4.8m at the Kopfontein border with Botswana near Zeerust. The driver had entered South Africa from Zambia through Botswana with the illicit contraband. From as far back as 2007, Botswana Police have repeatedly intercepted and recovered illicit cigarettes whose value ran into millions. Interestingly, the culprits would normally be charged admission of guilt fines averaging around P15, 000 and let go as their prosecution would “overburden Botswana’s criminal justice system.”

A joint report by the Institute for Security Studies (ISS) and the Secretariat of the Southern African Regional Police Chiefs Cooperation Organisation (SARPCCO) identified cigarette smuggling as a serious crime in terms of its monetary value and the potential harm cause by its transnational dimension. It has also been established that cigarette smuggling is in most countries underpinned by corruption.

South Africa is the nerve centre of the illicit tobacco industry in southern Africa; largely because it provides the largest, most profitable consumer market. Zimbabwe also plays an important role as the biggest tobacco producer in the region and the continent. The illicit trade also cuts throughout the region, originating from Zimbabwe and sold and trafficked through Botswana, Namibia, Zambia, South Africa and Mozambique.

The illicit cigarette market is made up of ‘genuine’ registered brands that are produced in legally registered factories, but smuggled through to avoid paying taxes. Apart from avoiding taxes at the borders, illicit trade also complements avoidance of corporate income tax, perpetuates anti-competitive behaviour and facilitates incapacitation of state owned institutions.

It involves small scale smuggling operations run by individuals or small groups; as well as organised smuggling cartels with political protection. These are the untouchables, who push the largest loads of illicit cigarettes with huge loaded trucks that pass through the borders undeterred. Investigations into the untouchables are often stonewalled by superiors.

At the end of the apartheid regime in 1994, South Africa took a stance against smoking as a threat to public health and promulgated the Tobacco and Related Products Control Act, imposing stringent controls on smoking in public places and higher taxes on cigarettes. In came British American Tobacco (BAT), which took over a comparatively diminishing market that recorded a gradual decline in the share of smokers in the population.

The restrictions and high taxes on cigarettes led to the rise of illicit cigarettes in the South African market, a mishap that many are dreading in Botswana with the promulgation of the Tobacco Control Act 2021. Fears abound that a thriving illicit cigarette trade will erode the market share of tax paying tobacco industry players and deny government much needed revenue.  

According to the Tobacco Institute of Southern Africa (TISA), illegal cigarette trade cost South Africa more that R8 billion in 2020 and more than R40 billion since 2010. In the 2013 financial year, the Botswana Unified Revenue Service (BURS) revealed that it had lost close to P1million due to smuggling and non-declaration of cigarettes across the country’s borders.

“The reality is that the Tobacco Control Bill 2021 will only affect law abiding citizens and result in loss of tax income. As legal cigarettes become more expensive, people will resort to cheaper illicit brands,” said a tobacco industry insider who spoke on condition of anonymity.

Furthermore, he said, the Covid-19 ban on cigarette sales enabled the illicit establishment to strengthen their distribution networks. With a ripe market brought on a silver platter by the Tobacco Control Bill 2021, the illicit cigarette traders will rake in millions while not paying a single thebe in taxes to government. 

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