The rising volume of illicit cigarettes in Zimbabwe poses a potentially significant threat to the local industry and Government coffers if it is not curbed, British American Tobacco managing director Clara Mlambo has said.
Official figures reveal in 2016 alone, Government lost approximately $18 million in form of excise duty on cigarettes.
“Trends suggest that the illicit cigarette products account for between 3 and 5 percent of the market and if this is allowed to grow to levels being experienced in South Africa, it will result in significant losses to the fiscus,” she added.
In South Africa, industry players say at least a quarter of the cigarette market is illicit, resulting in significant losses to the fiscus.
Tobacco Institute chairman Francois van der Merwe, referred to estimates that the fiscus had lost more than R27 billion in unpaid taxes on tobacco products from 2010 to 2016, and the trend was continuing.
“At least a quarter of the cigarette market in South Africa is illicit, with certain channels selling 50 percent to 100 percent illicit product,” he said.
According to Mlambo, although the Zimbabwean market has not reached those illicit levels, the practice is, however, growing.
“But what’s important is that we continue to engage with ZIMRA so that they go and enforce the law because today it can be 5 percent, but tomorrow it can be a big challenge as South Africa is facing.’
“Once we reach those levels, it means that the revenue Government will be losing will be too much because it means those products will not be paying taxes. It means we are taking away volumes from brands that pay excise duty to brands that are not paying anything.”
Mlambo said the contribution of cigarette products from an excise duty perspective was significant to the fiscus and growing illicit trading would deprive government of valuable revenue. Excise duty on tobacco, according to Mlambo, is $20 per 1 000 sticks.
“Our challenge is that some products are being produced in Zimbabwe but based on the pricing, you know that tax is not being paid because 40 cents of a pack of cigarette is tax. So the minute you see a packet of cigarette going for 50 cents or below 40 cents you know that tax has not been paid.
“It does not matter what your business model is. The costs involved means selling at 50 cents and below leaves you with a very unsustainable margin if any,” she said.
Mlambo said as much as industry players continued to engage with ZIMRA the change in personnel at the revenue collector had been a major drag.
“I think the challenge that we face with ZIMRA was that there were a lot of changes in the last two years within the ZIMRA teams so you reach a certain level of progress with one team and then the person is moved and then you start the conversation again and you reach another level and there are changes again.
“This has made tangible progress very difficult,” said Mlambo.
Commenting on business performance she said the first quarter had seen growth in its value for money segment.
She said the lower end, which had recorded phenomenal growth for the year to December 2017, had now stabilised but the value for money brands that’s where real growth was being recorded.
Mlambo said the performance in the first quarter was encouraging and the Group would continue to rejuvenate its brands with Madison having been refreshed recently.
“We keep refreshing our brands because if we just remain with the same brand with the same look and same feel that it was 40 years ago, then at some point the consumers will feel the brand is not moving with them to remain relevant,” she said.