‘No need’ to hike VAT if illegal cigarettes are eliminated
Tax Justice South Africa believes the government could generate the same amount of money as a 2% increase in VAT if it eliminates the illegal cigarette trade.
Finance Minister Enoch Godongwana on Wednesday pushed back the coalition government's first national budget speech to parliament in a shock move following internal pressures over tax hikes.
The speech to outline the government's annual fiscal priorities, including ways of raising revenue, was due to be delivered by Godongwana in parliament in Cape Town.
One of the main sticking points was believed to be a proposal to increase value-added tax by 2% to 17%.
The budget will now be tabled on 12 March.
According to an analysis by Tax Justice, each percentage point increase in VAT would have raised an extra R29 billion.
“A study by Oxford Economics has found that South Africa lost R27.1 billion in tax revenue due to illicit cigarettes in 2022 alone. This means that cracking down on criminal cigarette syndicates could deliver nearly the same revenue as a VAT hike without deepening the cost-of-living crisis for millions of South Africans,” said Tax Justice founder Yusuf Abramjee.
Abramjee said that the government should prioritise enforcing the law and shutting down illegal cigarette trades instead of punishing the public with VAT.
He adds that South Africa has one of the world’s largest markets for illegal cigarettes, with at least two in every three cigarettes sold evading tax.
“Now is not the time to withdraw the budget that has been planned for SARS. Instead, TJSA is calling on the Government to intensify efforts to eradicate the illicit tobacco trade by increasing enforcement, shutting down rogue manufacturers and invoking SARS’ legal right to install CCTV in all tobacco factories.”
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