Sars to clamp down on tobacco companies

President Jacob Zuma's eldest son Edward Zuma
President Jacob Zuma’s eldest son Edward Zuma
President Jacob Zuma’s eldest son Edward Zuma was listed as a director at the Amalgamated Tobacco Manufacturing company until 2011. Photo: Marilyn Bernard

Johannesburg – Sars will be asking the National Prosecuting Authority to prosecute 15 local tobacco manufacturers and importers for tax evasion and smuggling as they continue probing and clamping down on illicit trade.

And other traders, who are at “a risk of non-compliance” have been issued a warning of “regular and random audits and verification exercises”.

Should any of these traders be found to be non-compliant, their manufacturing licences could be withdrawn.

Last year alone, close to 8.5 billion illicit cigarettes were smoked in South Africa and the government lost over R5 billion in taxes not paid.

Over the past three years, this figure nearly tripled to R12bn.

As a result of this non-compliance, Sars has in the last two weeks served dozens of tobacco traders with notices warning them of formal investigations and ordering them to ready their tax affairs for inspection.

Spokesman Adrian Lackay was reluctant to comment, saying the charges against the implicated entities would be subject to confidentiality clauses.

Prosecution spokesman Nathi Mncube said the cases were still with other agencies.

The taxman’s warning came in a strongly worded letter to the tobacco industry.

“Sars will apply the most appropriate punitive measure in law to deal with serious offences, which could include the withdrawal or refusal of registrations and licences,” wrote the revenue service’s enforcement head Johann van Loggerenberg.

Sars’s investigation is not restricted to the independent manufacturers and importers, but will also probe concealed international transactions by some mainstream tobacco manufacturers, including a listed company.

Among the independent manufacturers, it is understood that Carnilinx and other traders such as Pietermaritzburg-based Amalgamated Tobacco Manufacturing, Gold Leaf Tobacco and East London Cut Rag Processors have been served with notices. Gold Leaf and East London Cut Rag are not affiliated with any industry bodies.

Carnilinx director Adriano Mazzotti denied that they were specifically targeted.

“Notices went to everyone in the industry. We liaise with each other and we have been speculating about who (the allegations) are directed at. We welcome a full investigation.

“Everyone has had the same visits. It’s been a fair investigation. They visited us and looked at our documents. No one is specifically targeted,” he said.

Amalgamated Tobacco Manufacturing, which listed President Jacob Zuma’s son Edward Zuma as a director until 2011, was recently linked to a consignment of 8.5 million illicit cigarettes confiscated by police in Edenvale in August.

Three years ago, one of the company’s directors, Yusuf Kajee, was investigated by Sars for tobacco smuggling. The probe led to the liquidation of Delta Tobacco, its then-manufacturing company.

Fair-Trade Independent Tobacco Association (Fita) chairwoman Belinda Walter would not comment on allegations that certain traders were specifically targeted. She said that to the best of her knowledge, all companies received notices of intention to inspect tax affairs. She referred all further queries to the companies directly involved.

Earlier in the week, in a response to Sars’s letter, Walter said Fita was not in a position to respond directly to any of the allegations regarding specific crimes in the industry.

Van Loggerenberg’s letter announced Sars’s intention to “significantly increase its activities” investigating the evading of duty and taxes.

According to the letter, there had been an increase in “straightforward smuggling of cigarettes into the country”.

In the past, importers would resort to administrative tactics such as under-valuation, where they said they paid less for products to pay lower excise duty and VAT.

Recently however, couriers were smuggling low volumes of cigarettes in small bakkies, trucks and via individuals using public transport.

Most of the products came from Zimbabwe, a major tobacco producer.

Tobacco Institute of Southern Africa chairman Francois van der Merwe said Sars’s findings were in line with independent research they commissioned.

Van der Merwe welcomed the audit of tobacco manufacturers and importers, saying it was time to level the playing field.

Sunday Independent