On the front lines of the Tobacco Bill battle, the first salvo of the year was launched.
British American Tobacco South Africa (Batsa) announced in January that the company would shut its Heidelberg cigarette manufacturing plant by the end of 2026.
It has to close up shop and lay off 230 staff, it says, because illicit trade and exorbitant taxes have made business unviable.
It’s uncannily convenient timing for the industry, a live demonstration straight from the pages of the Big Tobacco playbook, which threatens job losses and even more illegal trade if the bill goes through as is.
The bill, which has been in the works for over seven years and is expected to be signed into law this year, bans the advertising of electronic devices such as e-cigarettes and vapes, tobacco product displays at points of sale, smoking in all public areas, and the sale of single cigarettes.
The industry, and specifically Batsa, has been pushing back hard on requirements for plain packaging and graphic warnings for all tobacco products, including cigarettes and electronic devices, something the World Health Organisation (WHO) says is a crucial way of making tobacco and nicotine products less attractive to consumers and a low-cost approach to educating people about the health risks of tobacco use.
One of the industry’s well-worn talking points is that because plain, standardised packaging makes all products look alike, it is harder for consumers and authorities to spot counterfeit cigarettes, which are cheaper and aren’t taxed or regulated—something public health researchers have repeatedly debunked.
High tobacco taxes, the industry maintains, are the real driver of illicit trade. But a 2019 World Bank review of the illicit tobacco trade in 30 countries refutes that argument.
It found it’s more about poor tax administration, weak enforcement, weak regulatory frameworks, corruption, the availability of informal distribution networks, and governance issues.
Countries as different as the US, Kenya, and Georgia, it says, have all been successful in reducing illicit trade while increasing tobacco taxes and tobacco tax revenues by improving their tobacco tax administration.
The industry is known for exaggerating the size of the illicit market—BAT puts it at about 75%, while a 2024 study from the University of Cape Town’s Research Unit on the Economics of Excisable Products (Reep) says it is closer to 60%—but it is massive by either count.
To try and sort out fact from the fiction enmeshed in the industry tactics and talking points, we spoke with Corné van Walbeek, director of Reep and co-author of the study, on a recent episode of Bhekisisa’s monthly Health Beat TV programme.
Here’s an edited version of that interview, along with his take on the 2026 public health agenda.
How to decode Big Tobacco’s illicit trade fiction
How big is South Africa’s illicit cigarette trade problem?
Since 2020, taxes have not been paid on more than 50% of all cigarettes smoked in South Africa.
Our best estimate is that, over the past six years, about 60% of cigarettes are illicit in the sense that the taxes have either not been paid in full or at least not paid in part. That’s a major, major problem.
On conservative estimates, we estimate that the government loses about R15-billion every year in excise tax revenue because of the illicit trade.
Who is affected by illicit trade?
From a public health perspective, these very cheap illicit cigarettes are really harmful to public health because they make cigarettes cheaper and allow people who would otherwise not be smoking—because it’s too expensive—to buy cigarettes.
At the same time, it’s harmful for the fiscus because the government doesn’t get the revenue.
For companies like BAT, this is also a major problem. BAT had 95% of the market at the turn of the century, but their share has reduced to about a third of the market. They have lost massively.
Who is producing these illicit cigarettes?
It is mainly undeclared local producers that work in the shadows. They are, in principle, legitimate companies.
They are licensed, and they have documents to show they are incorporated. So they’re not illegal. However, they do illegal things.
They produce a million cigarettes and might declare 100 000 of them and say, “This is all we have produced.”
In South Africa, we do not have tax stamps or any other mechanism on the pack that indicates that the tax has been paid.
The declaration of excise taxes basically works on an honesty system, but many of the cigarette producers are not honest.
To calculate the minimum price for a pack of cigarettes to be legal, we start with the excise tax, which is R22.81 per pack at the moment. On top of that, there is the cost of producing it, plus some wholesale and retail margin, and 15% VAT.
We estimate that any pack of cigarettes that sells for R35 a pack is highly suspicious, because the excise tax plus VAT is already getting us close to R27 to R28, plus a little bit for production cost.
When we analyse surveys and price data, anything below R35 a pack we would regard as an illicit cigarette. It might be partially illicit—some tax has been paid, but definitely not all the tax.
What is the rationale for an excise tax?
Studies have been done to look at the cost of tobacco, and all those studies consistently find that the cost of these products to society is much greater than the revenue that the government gets in the form of excise taxes.
The excise tax is imposed to (partially) account for the fact that the social costs of smoking are much greater than the costs of these products to the individual.
In 1994, the incoming ANC government started increasing the excise taxes on tobacco quite strongly.
This strategy lasted from 1994 through 2010. The rationale for increasing the excise tax was to reduce tobacco use.
The desire to raise revenue was secondary. However, it turned out that the sharp increases in the excise tax between 1994 and 2010 greatly increased excise tax revenue as well.
In the early 1990s, approximately 32% of South Africans were smoking. That number dropped to about 20% in 2010. Our research has shown that the main reason for this decrease in smoking was the rapid rise in excise taxes, more than any other tobacco control intervention.
Tobacco is highly addictive, and tobacco is very difficult to quit. But what we have seen over that extended period of time is that many people have, in fact, quit.
And a large number of people have not started smoking because cigarettes have become far more expensive over that period.
Is it true tax hikes drive illicit trade?
It is a seductive argument, but there is very little empirical support for it. Since 2010 the excise tax on cigarettes has remained largely unchanged in inflation-adjusted terms.
The treasury increased the nominal excise tax by the inflation rate each year, not much more than that.
However, we see a massive increase in illicit trade during this period. This was mainly due to unethical and illegal behaviour by the tobacco industry, failures in tax administration—the closing of dedicated units at SARS during the Moyane period—and poor policy decisions, such as the decision to ban tobacco sales during COVID in 2020.
In contrast to the post-2010 period, the period between 1994 and 2009 saw massive increases in the excise tax.
During this period, cigarettes became much more expensive. However, there was no increase in the illicit trade.
Why? Because SARS and the enforcement authorities had a good handle on the industry, and corruption had not become as entrenched as it has become in the last 15 years.
What was the impact of the 2020 COVID sales ban?
To try and curb COVID, the government banned the sales of tobacco products for 20 weeks. We conducted a number of online surveys during this period and concluded that, while the ban might have been well-intended, the costs of the ban greatly outweighed the benefits.
A modest number of people quit smoking during the sales ban, but many people continued smoking. All cigarettes that were purchased during this 20-week period were illicit.
Companies that had previously developed marketing channels into informal markets—mainly the producers of illicit cigarettes—were able to take full advantage of the situation and greatly increased their market share.
Because people were so desperate to find cigarettes, all brand loyalties were thrown out of the window, and people were quite happy to smoke brands that were known (before the sales ban) to be illicit.
After the ban was lifted, many people kept smoking those illicit cigarettes. The illicit market has become so deeply entrenched that it’s going to be very hard for Sars to get rid of it.
What solutions exist to fix the illicit trade problem?
It’s incumbent upon the revenue authorities, specifically SARS, as well as the law enforcement authorities, to really go after these companies that are producing these very cheap, unpaid-tax cigarettes.
Law enforcement is vital, and our frustration is that there are mechanisms in place that the authorities can use, but they are not used well.
We would like the government to seriously consider ratifying the WHO’s Protocol to Eliminate Illicit Trade in Tobacco Products and implementing it—basically securing the supply chain.
Among other things, this would require that all players in the tobacco chain be licensed and that the government implement a track-and-trace system.
From our discussions with a number of government departments, there is little commitment to ratify and implement the protocol.
Implementing it would require a whole-of-government approach and would require the commitment of the Department of Health, the Treasury, SARS, and the enforcement authorities. From our understanding, none of these bodies wants to take the lead.
What is track-and-trace technology?
Many countries have track-and-trace systems in place, which basically means that on every pack of cigarettes there is a tax stamp with a unique code that allows both the public and the authorities to trace the route that the product has taken and whether the taxes have been paid or not.
At this point in time, if you pick up a pack of cigarettes in South Africa, there’s no way of knowing how much tax has been paid, if any tax has been paid at all.Â
BAT is on record saying they support it. That’s odd, because usually tobacco companies don’t support it.
But in the case of South Africa, because they’ve been hammered so hard by illicit trade, they would say: “Rather let’s just have some track and trace in place.”
There’s a system called Codentify developed by Philip Morris that’s available to the tobacco industry.
If they can persuade the government to use their system and link into their system, then that gives them control of the data, rather than giving full control to the revenue authorities.
But the WHO protocol says very explicitly: do not go for a system that is influenced and controlled by the tobacco industry.
It must be completely independent of them. Giving the tobacco industry control of the track-and-trace system is the equivalent of putting the fox in charge of the henhouse.
Additional support from the Health Beat team: Anna-Maria van Niekerk, Jessica Pitchford, Tim Wege, Jeanine Snyman, Albert Tibane and Thatego MashabelaÂ
This story was produced by the Bhekisisa Centre for Health Journalism. Sign up for the newsletter.
