Sandton, 20 February 2019 – The Consumer Goods Council of South Africa (CGCSA) says the increase in excise duty on products such as tobacco and alcohol will only result in illicit trade as traders sell products cheaper than those subject to excise duty. This is already having a direct impact on manufacturers who are concerned about potential revenue and job losses.

Responding to tax revenue measures announced in the 2019 National Budget by the Minister of Finance, CGCSA Chief Executive Gwarega Mangozhe says it is a global phenomenon increased taxes create a greater incentive for tax evasion, which boosts illicit trade as is already happening in South Africa now.

“This reduces the tax base and therefore income for the state. This is in addition to the consequential job losses which our recession-strapped country can ill afford. We believe that until such time as the playing field has been levelled by proper enforcement and ensuring all are paying taxes, excise on tobacco and some alcohol products should not be increased for the next year at least,” says Mangozhe.

Mangozhe says currently, it is estimated that the South African Revenue Services (SARS) is losing at least R8 billion annually from the sale of illicit cigarettes alone. He says CGCSA welcomes the formation of a new Illicit Economy Unit which was launched in August 2018 to specifically fight trade in illicit cigarettes and tobacco.

““Illicit economy has now become a major economic threat to the country. CGCSA convened the first ever forum on illicit trade in 2018 has already proposed several proposals to the government to deal with illicit economy,” Mangozhe says.
Mangozhe says CGCSA welcomes government commitment to address the crisis at state owned enterprises and the further reform of the visa regulations to facilitate recruitment of skills, support the investment drive and boost tourism, which is now a major source of foreign receipts and employment creation.

Equally commendable are planned measures to support emerging farmers with the eventual aim of supporting them to enter the mainstream agricultural economy, Mangozhe says. He also says the promised rationalisation of the civil service wage bill is a step in the right direction given the pressure on government revenues.

However, Mangozhe says CGCSA is concerned government is projecting a significant revenue shortfall of revenues during the new fiscal year. This shows the economy is not growing fast enough to generate the tax revenues needed to fund government spending. He says the projected GDP growth of 0.7% in 2018, and only rising to 1.5% GDP in 2019, is hardly enough to reduce the triple challenges of poverty, unemployment and inequality.

“There is need for accelerated implementation of policies to encourage more domestic and foreign direct investment and support President Ramaphosa’s drive to raise US$100 billion in investment. CGCSA members remain committed to supporting the government to grow the economy, but remain concerned about policy inconsistencies affecting its members, such as the sugar tax which is already forcing some companies to retrench workers, as well as the proposed regulations in the Competition Amendment Bill which could discourage big companies in the consumer sector from investing further,” says Mangozhe.

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