Tobacco companies have mixed reaction to Budget

The tobacco industry has reacted with mixed feelings to Minister of Finance Trevor Manuel’s announcement on Wednesday of an increase of 7,5% and 14,9% in tobacco tax.

While tobacco companies agreed Manuel deserves to be complimented for keeping to his commitment that excise duty will remain at 52% for the next three years, they said Wednesday’s increase is cause for concern.

“The latest increase in excise will add to the attractiveness of South Africa as a target market for groups who deal in counterfeit and smuggled cigarettes,” said Andre van Pletsen, regulatory affairs manager at British American Tobacco South Africa.

He said while consumption of legal cigarettes is declining, that of illegal cigarettes is on the rise.

Contraband cigarettes are imitations of legal brands and are smuggled into the country.

“Government has limited control over the illicit trade—it can’t enforce regulation regarding the sale of cigarettes to minors, the laws relating to health warnings on packs or the levels of tar and nicotine in illegal cigarettes,” said Van Pletsen.

He said the government is losing tax revenue and seems oblivious to the growth in the illegal trade.

“Illegal tobacco products are being sold between R3,50 and R7 on the street,” said Van Pletsen.

JT International (JTI) described the increase in excise duty as a no-win situation for both the government and the tobacco industry.

JTI MD Marchant Kuys said: “Smuggling serves nobody’s interests but the illegal operators themselves. The influx in contraband cigarettes is not in our interests; and it is not in the interests of the government.”

JTI is the local manufacturer of international cigarette brands in South Africa.

From Thursday onwards, a packet of Peter Stuyvesant will cost R13,40—an increase of 70 cents. British American Tobacco South Africa said the price includes both value-added tax (VAT) and excise. VAT on a packet of Peter Stuyvesant will be R1,65.

The Tobacco Institute said the price of pipe tobacco will increase by 19,8c (11,6%) and self-rolled cigarette tobacco by 52,1c (7,5%).—Sapa

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