TELITA SNYCKERS: How SA loses from tobacco’s hidden tax breaks
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With the government facing a budget shortfall of R1.1-trillion an tax collections 20% lower than last year, you’d think it would be happy for whatever extra revenue it could get.
At the annual Tax Indaba this week, Keith Engel, the CEO of the SA Institute of Tax Professionals, spoke of the contribution which transactional taxes could make to close the gap.
As it turns out, there is quite a bit of room for extra collections from the tobacco industry — in large part due to hidden tax perks the industry secured for itself.
A bizarre Swiss agreement
Switzerland, curiously, exports almost as many cigarettes as it does chocolates — nearly 2 billion packs a year. As much as 75% of that is exported to Japan, Morocco and SA.
Now, I really couldn’t tell you the business rationale for SA importing cigarettes from Switzerland, given its own domestic capabilities and its proximity to tobacco powerhouse Zimbabwe. Nonetheless, in 2014, 74% of SA’s imported cigarettes came from Switzerland. By 2018, this had increased to 87%.
But there’s one possible explanation for why so many SA cigarettes are imported from Switzerland — home to the 3 biggest tobacco companies in the world: there’s a big incentive to do so.
The European Free Trade Agreement stipulates that if SA imports cigarettes from Switzerland, there is no duty payable — yet a 45% duty is slapped on imports from anywhere else.
In other words, importing tobacco from Switzerland is 8 to 9 times cheaper than doing so from anywhere else.
As trade analyst Donald MacKay points out, SA’s bilateral agreement with Switzerland includes 22 tariff headings, but imports are only made against five of them — small volumes of cheese, vegetable extract, pet food, animal feed — and enormous volumes of cigarettes.
Consider that between May 2019 and April 2020, SA imported R4m of cheese from Switzerland, R3m of pet food — and R600m of cigarettes. In fact, 98% of the imports under this “trade agreement” with Switzerland relate to cigarettes, rendering it one of the more peculiar trade agreements the country has ever concluded.
Unless, perhaps, the original purpose of this bizarre deal was to create a preference for tobacco, and the rest was simply padding to hide the true intent of the deal, it’s a bizarre agreement with little apparent commercial substance.
This isn’t the only cushy deal the tobacco industry has negotiated ...
At the annual Tax Indaba this week, Keith Engel, the CEO of the SA Institute of Tax Professionals, spoke of the contribution which transactional taxes could make to close the gap.
As it turns out, there is quite a bit of room for extra collections from the tobacco industry — in large part due to hidden tax perks the industry secured for itself.
A bizarre Swiss agreement
Switzerland, curiously, exports almost as many cigarettes as it does chocolates — nearly 2 billion packs a year. As much as 75% of that is exported to Japan, Morocco and SA.
Now, I really couldn’t tell you the business rationale for SA importing cigarettes from Switzerland, given its own domestic capabilities and its proximity to tobacco powerhouse Zimbabwe. Nonetheless, in 2014, 74% of SA’s imported cigarettes came from Switzerland. By 2018, this had increased to 87%.
But there’s one possible explanation for why so many SA cigarettes are imported from Switzerland — home to the 3 biggest tobacco companies in the world: there’s a big incentive to do so.
The European Free Trade Agreement stipulates that if SA imports cigarettes from Switzerland, there is no duty payable — yet a 45% duty is slapped on imports from anywhere else.
In other words, importing tobacco from Switzerland is 8 to 9 times cheaper than doing so from anywhere else.
As trade analyst Donald MacKay points out, SA’s bilateral agreement with Switzerland includes 22 tariff headings, but imports are only made against five of them — small volumes of cheese, vegetable extract, pet food, animal feed — and enormous volumes of cigarettes.
Consider that between May 2019 and April 2020, SA imported R4m of cheese from Switzerland, R3m of pet food — and R600m of cigarettes. In fact, 98% of the imports under this “trade agreement” with Switzerland relate to cigarettes, rendering it one of the more peculiar trade agreements the country has ever concluded.
Unless, perhaps, the original purpose of this bizarre deal was to create a preference for tobacco, and the rest was simply padding to hide the true intent of the deal, it’s a bizarre agreement with little apparent commercial substance.
This isn’t the only cushy deal the tobacco industry has negotiated ...