Up to 70% of cigarettes sold in South Africa are illicit, resulting in annual tax revenue losses exceeding R27 billion.
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Finance Minister Enoch Godongwana has warned that illicit trade poses a growing threat to South Africa’s economy, tax base, and consumer safety, describing it as a risk to recent fiscal gains.
Delivering the Budget, Godongwana said illicit activity “robs the fiscus of billions in revenue”, threatens the economy and endangers consumers.
Godongwana pointed to the recent decision by a “major tobacco producer” to shut its local manufacturing operations as a stark example of the economic damage linked to the illicit cigarette market.
The minister’s remarks follow British American Tobacco South Africa’s (BATSA) announcement in January that it will close its Heidelberg manufacturing facility by the end of 2026.
BATSA attributed the decision to what it described as the “devastating impact of the illicit cigarette trade” on the local market.
The company said its factory is operating at roughly 35% of capacity due to declining legal sales volumes.
Godongwana said the sophisticated and organised nature of illicit trade networks requires stronger enforcement, successful prosecutions, and the dismantling of supply chains.
“The South African Revenue Service (SARS) has already intensified its efforts. It will also continue its joint operations with the Border Management Agency, the South African Police Service and the Defence Force to stop the illicit trade in tobacco,” Godongwana said.
Johnny Moloto, head of corporate and regulatory affairs at BAT Sub-Saharan Africa, said in January that continued local manufacturing had become economically unviable as illicit products increasingly dominate the market.
BATSA said it would transition from a local manufacturing model to an import-based supply chain but remains committed to the South African market. The company currently controls about two-thirds of the legal cigarette market.
The scale of South Africa’s illicit cigarette trade remains contested, though estimates consistently point to significant losses.
A parliamentary written reply by Godongwana in 2025 indicated that up to 70% of cigarettes sold in South Africa may be illicit, contributing to annual tax revenue losses exceeding R27 billion.
Separate research, including the South Africa Illicit Economy 2.0 Report, estimates that illicit trade in tobacco and alcohol costs government around R30 billion a year.
That report warned that illicit trade threatens economic stability, governance, and South Africa’s international standing.
BATSA has repeatedly called for stronger enforcement action, arguing that illicit operators distort pricing, erode legitimate market share, and weaken the viability of local manufacturing.
The company has also cautioned that regulatory uncertainty and widening price gaps between legal and illegal products may exacerbate the problem.
Government has positioned the crackdown on illicit trade as central to protecting revenue collection and preserving industrial capacity.
In March 2025, BATSA welcomed government’s move to recoup some of the R28 billion in uncollected tobacco taxes that it said would be lost to the illicit trade this fiscal year. Illicit cigarettes sell for as little as R5 for a box of 20.
Last October, SARS applied for a businessman to be sequestrated after he was found to be one of the main role players in a scheme which involved the importation of tobacco by entities who had no obvious links to registered cigarette manufacturers.
Roy Muleya owed SARS more than R155 million in taxes that he had apparently bypassed.
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