Zimbabwe cigarette cartels also pose tax threat in South Africa, report shows

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By Sihle Mlambo 3h ago

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Johannesburg – A recently released report on powerful cartels in Zimbabwe revealed how cigarette makers are illegally infiltrating the South African market, while dodging local tax authorities.

In a report published by the Maverick Citizen, the report titled Zimbabwe Cartel Power Dynamics Report, which is written by Anonymous Stakeholders in Zimbabwe, details how cartels have crippled state institutions in Zimbabwe and that there is little political will for the issues to be addressed.

He estimates that more than $ 5 billion (roughly R73 billion) is lost due to corrupt transactions carried out by the cigarette, fuel and agriculture cartels in Zimbabwe.

The report details how cigarettes are smuggled into South Africa – where they are no longer subject to a 40% excise duty and are then sold for less in the local market than locally produced tobacco products.

The report states that 27% of cigarettes consumed in South Africa are smuggled into the country by cartels.

“The main cigarette smuggling cartels consist of 1) political bosses who allow cartels to operate with impunity, 2) transport companies that deliver cigarettes, and 3) distribution networks in South Africa,” the report said. report.

The report alleges that the Pacific Cigarette Company, owned by Adam Molai, the nephew of former Zimbabwean President Robert Mugabe, whose cigarettes are smuggled into the country by rail, road and air, along with Gold Leaf Tobacco Zimbabwe, which is owned by the Rudland family, which also owns a trucking company and an airline, FastJet, are among the major players in the cigarette industry.

“Under (Zimbabwean President Emerson) Mnangagwa’s administration, cigarette smuggling continued to flourish and the operations of the money men were unimpeded.

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“The ban on the sale of cigarettes during the Covid-19 pandemic in South Africa has dramatically increased the market and prices of contraband cigarettes,” the report says.

He said actors in Zimbabwe who were supposed to tackle cartel-like behavior in the cigarette trade space had been crippled.

“A clear majority of actors responsible for combating cartel behavior have become financially dependent and complicit in cartel activities.

“Despite the difficulties, there are opportunities for stakeholders to fight cartels, and there are a small number of individuals and institutions with some interest and political will to fight cartels. The Zimbabwean government has very limited political will to stop the cartels, which allow Zanu-PF to take power.

“However, the government is also aware that cartels are one of the main reasons for the economic crisis Zimbabwe is facing and the failure of the ‘Open for Business’ mantra to attract significant investment to the country,” notes the report.

Noting the impact of the Zimbabwean cartels on the economy and local affairs, last week we sent five questions to the South African Revenue Service, seeking their comments on the report.

The questions read:

* What measures has SARS put in place to combat the illicit flow of tobacco products from Zimbabwe to South Africa?

* During the past fiscal year, how many tobacco products has SARS confiscated?

* How serious is the illicit trade problem and how big is the threat of SARS?

* Has SARS seen the report and are there measures in place to address the concerns expressed?

* The Pacific Cigarette Company, owned by Zim businessman Mr. Adam Molai, has been identified as one of the main beneficiaries of the illicit tobacco trade. Does Sars know about this company and are there any updates on such a probe?

Anton Fisher, a spokesperson for Sars did not comment on the specific questions and only said in an email response Tuesday morning: “Under Chapter Six of the Tax Administration Act, Sars is not authorized to discuss or disclose confidential information about a taxpayer. information “.

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But one local organization in South Africa that is concerned and speaks out against the impact of cigarette smuggling is the Fair Trade Tobacco Association, which represents local cigarette companies such as Carnilinx, Best Tobacco Company and Afroberg Tobacco Manufacturing.

Sinenhlanhla Mnguni, Fita President, expressed concern about the situation in Zimbabwe, which had unforeseen consequences for South Africa.

He said local industries, employers and their employees, the state and its coffers, and ultimately the citizens of this country, would feel the full impact of smuggling.

“The tobacco industry as a whole has, over the years, been vehement about the exponential increase in illicit tobacco and related products emanating from Zimbabwe in particular, which has been highlighted in the report, and of which the illegal practice has grown at an alarming rate in recent times. a few years, and in particular following the lifting of the ban on the sale of cigarettes in South Africa during the blocking period in August 2020.

“If this situation is allowed to continue unchecked, as it appears to be the current state of affairs, the obituaries of many legitimate players in the local tobacco industry will have been practically written.

“The situation seems to be getting worse by the day, and all the relevant regulatory authorities seem to have no response to the challenge posed to them by the criminal syndicates behind these acts,” Mnguni said.

Mnguni said Fita pleaded with Sars to strengthen border security measures and said the matter needed urgent attention.

“This problem needs to be addressed urgently as we are currently seeing a substantial amount of cigarette brands on the market from all of our neighboring countries, but mainly Zimbabwe, and it is clear that many officials are not doing their jobs.

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“To this end, we have called for interventions such as the rotation of border control personnel, the constant surveillance of officials at all our border posts and the improvement of control techniques at our borders.

“We further ad nauseam implored Sars and the National Treasury to engage with their relevant counterparts in our neighboring countries regarding enforcement issues and to explore the potential of having an amount of tax standard excise duty on tobacco products in the SADC region, ”Mnguni said.

The Pacific Cigarette Company, however, denies that it smuggles cigarettes into South Africa.

In a statement, Molai says his hands are clean.

“I noted with extreme dismay Maverick Citizen’s references to the Pacific Cigarette Company and to myself in his ‘talk’ of Cartel Power Dynamics in Zimbabwe.

“The allegations are totally false and baseless. We would have made it clear if Maverick Citizen had given Pacific Cigarette Company or myself the opportunity to respond, as required by press code and good journalistic practice, ”said Mr. Molai.

He said there was no evidence his company was ever among those involved in smuggling cigarettes into South Africa and asked for evidence.

“The Pacific Cigarette Company has never been involved in contraband cigarettes or condone it in any way. Our company is proud of its history of democratizing the tobacco industry in Zimbabwe through the introduction of contract farming which has increased the participation of over 85,000 families, ”he said.

The report calls on the media and civil society to continue collecting evidence and information on the inner workings of cartels, exposing other cartels in other industries, producing a documentary and bringing charges for those involved in cartel and tax fraud activities.

TBEN

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