Tobacco firms want 30% levy stubbed out

Tobacco firms want 30% levy stubbed out

MASERU – TOBACCO trading companies have appealed to Parliament not to impose a proposed 30 percent levy as it might set the stage for a booming illicit cigarette market.
The companies say the new levy will prejudice their businesses.
This comes after Finance Minister Dr Moeketsi Majoro proposed during his budget speech on March 12 to impose a 30 percent levy on all tobacco products.

On March 19 Morena Distributors (Pty) Ltd, a company that markets and distributes cigarettes for British American Tobacco submitted a presentation before Parliament’s Economic Cluster Portfolio Committee urging the committee to reject the proposal.
“The punitive levy (of) 30 percent will immediately create further demand for cheap illicit cigarettes at the expense of the legal industry,” the company told the committee, headed by the Mosalemane MP Tsoinyane Rapapa.
“The position creates arbitrage opportunities for traders given that the same cigarettes sold in Lesotho will become 46 percent more expensive than those sold by its neighbour, South Africa,” the company said.

It argued that the SACU 2019 excise increase of 7.4 percent on tobacco products, coupled with Majoro’s proposed 30 percent levy in Lesotho “will impose a pricing disparity between illicit cigarettes and legal cigarettes of 82 percent”.
It said the illicit market is estimated to close at 48 percent with the legal industry’s volumes reducing by 35 percent by the end of this year.
“It is clear that by end of 2021 the legal industry will be totally decimated as a result of the heavy levy,” the company said.
“The cigarette industry will be run entirely by underground racketeers who (will) operate outside the law.”
The British American Tobacco told a press conference last week that the proposed levy will not only change the consumer consumption behaviour but will also fuel the success of illicit trade.
The British American Tobacco’s External Legal Affairs Manager, Stephen Xlybadth, said “illicit cigarettes are the cigarettes which are sold in Lesotho without paying the relevant tax”.
Xlybadth said illicit cigarettes are manufactured in South Africa and sold in Lesotho.

He said the cigarette companies which pay appropriate tax are charged the minimum levy of M19.16 plus the distribution cost of M6 and other costs which drive a box of 20 sticks of cigarettes to above M30.
“Illicit cigarettes are sold in Lesotho at between M10 and M20, showing that the relevant excise duty would not have been paid as compared to M30 for the cheapest legal cigarettes,” he said.
He said in 2017 the number of legal cigarettes sold were close to 150 million which was a drop by 30 million due to illicit cigarettes, which are taking over the legal tobacco market.

He said the 30 percent levy will mean that the minimum price of cigarettes sold to consumers will increase by M8 per pack because of the SACU excise increases by 7.3 percent.
He said the company contributed M108 million in tax revenue in 2018 to Lesotho. The figure was M22 million less than what the company contributed in 2017. He said the decline is due to the expansion of the illicit cigarette market.
“Reduction in government revenue collection is a direct result of increased illicit trade and (the proposed) levy would exacerbate this situation,” he said.

The Corporate Affairs manager of British American Tobacco in Southern Africa, Mandlakazo Sigcawu, said the proposal to increase levy by 30 percent on top of the highest levy they already pay will ruin the tobacco industry in Lesotho.
She said the levy increase will cause the legal cigarette to be more expensive than the illegal one and create a price difference of 82 percent which will lead to the booming of illicit cigarettes and a fall of legal tobacco industry.
“Cigarettes smugglers are already cashing in on the huge price gap between legal products that pay taxes and their ultra-cheap cigarettes that have not paid taxes,” she said quoting the General Manager from BAT Kyle Fourie.
“We call on the government of Lesotho not to punish the legal industry with this new levy and reward the smugglers with a massive business opportunity,” she said.

British American Tobacco South Africa is the second largest company listed on the JSE by market capitalisation, and the leading tobacco manufacturer in South Africa by market share.
Xlyabadth said the company has created 1 500 jobs in Lesotho.
Morena Distributors (Pty) Ltd said lessons from Botswana provide instructive insights to this issue.
It showed that in 2014 Botswana introduced excessively high levy on tobacco products and as a result cigarettes sold in South Africa became at least 30 percent cheaper compared to those sold in Botswana.
“The rate of smuggled illicit cigarette products grew by 1000 percent between 2014 and 2017,” the company said.

“In nominal terms, as at December 2018, the rate of smuggled illicit cigarettes stood at a notable 35 percent of the total market representing lost revenue of over BWP 70 million in government taxes.”
The company showed that the Botswana government “has started the process of reviewing all levies in order to create a sustainable environment supportive of industry growth”.

Refiloe Mpobole

 

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