The South African Revenue Service (Sars) is ramping up its fight against the massive R280 billion illicit goods market with a new plan. They're working on a sophisticated marker system for excisable items. Sars commissioner Ngobani Johnstone Makhubu announced this initiative, aiming to boost tax compliance using smart, traceable labels and tamper-proof counters.
Makhubu disclosed that Sars is on the hunt for a partner to help create a system that can place intelligent markers on goods that comply with excise laws. The idea is to make it tough for criminals to game the system. They've already started discussions with the South African Bank Notes Company, considering advanced markers similar to those found on banknotes.
At a post-medium term budget policy statement breakfast hosted by RMB, Makhubu stressed the need for a system that's user-friendly for compliant producers but secure against illicit copying. He detailed that once these markers are developed, they will need to be distributed to manufacturers under strict conditions and integrated into production lines. This system will enable Sars to monitor production closely and enforce compliance effectively.
“If it’s not scanning at any given time, the tax administration must activate the response team to be able to knock at the door of the manufacturer and say, ‘What’s happening? We’re not getting this feed, and yet, at this point in time, in your schedule, you say we are producing, ’” Makhubu stated, underscoring a proactive enforcement strategy.
Production site oversight is critical, as Sars has found discrepancies between reported banking flows and the actual financials of some businesses. Makhubu voiced concern about companies that maintain separate books for Sars and their actual operations. He highlighted the need for a solution that combines people, data, and technology to counter any system tampering.
Back in 2021, Sars installed counters in cigarette factories to keep tabs on production. But those were tampered with. To tackle this, Sars is now looking at global solutions for smart counters to integrate into their strategy. Makhubu mentioned that the system won't just be limited to tobacco and alcohol; it will also include pharmaceuticals and sugary drinks to ensure compliance with health levies.
During the medium-term budget policy statement in parliament, Finance Minister Enoch Godongwana acknowledged Sars's crucial role in battling the illicit economy, especially in the alcohol and tobacco sectors. He pointed out that Sars’s customs and excise modernization efforts, such as improved cargo scanning and track-and-trace capabilities, are disrupting illicit trade networks. A detailed update on the National Illicit Economy Disruption Programme is expected in the next budget.
Despite these strides, British American Tobacco (BAT) has voiced doubts about the effectiveness of the government's illicit economy disruption programme. Johnny Moloto, BAT's head of corporate and regulatory affairs for Sub-Saharan Africa, referenced an Ipsos study showing that cigarette brands priced below the minimum collectable tax (MCT) are still widely available. Three out of four stores in South Africa sell cigarettes below the MCT of R27.12, with some brands going for less than R20 per pack.
Moloto criticized the lack of enforcement, saying, “These results show that while the president has recognized the threat of the illicit tobacco trade and signaled government’s intention to address it, illicit manufacturers continue to operate with impunity, openly selling their brands for less than the taxes due on every pack.” He called on Sars to show real consequences for those benefiting from illicit trade.
The findings indicate a consolidation among illicit producers, who are ramping up the volume of products sold below the MCT threshold. This ongoing issue highlights the necessity for Sars's new compliance measures to be both strong and adaptable to the changing tactics of illicit operators.
