R28 Billion Lost: The True Cost of Illicit Cigarette Trade in South Africa

South Africa is grappling with a severe illicit cigarette trade crisis that is draining the economy of an estimated R28 billion annually in lost tax revenue. This staggering figure, revealed in multiple recent studies, highlights the deepening impact of illegal tobacco sales on government finances, public health, and the broader economy. The illicit cigarette market now accounts for as much as 70% of total cigarette sales in the country, creating complex challenges for enforcement agencies, legitimate businesses, and communities alike.

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What Drives the Illicit Cigarette Market?

Historically, illicit cigarette sales in South Africa were largely attributed to cross-border smuggling. However, recent analyses reveal that local domestic manufacturers are increasingly fuelling this crisis. By producing large volumes of cheaply priced cigarettes, the cigarettes end up flooding the market illegally.

These illicit products are widely available, with many retailers offering them openly despite legal restrictions. Survey data shows that 69% of stores sell cigarettes below R20. With some outlets selling packs for as little as R10, the price point impossible under legal tax levying.

The Scale of the Problem: A National Crisis

The illicit cigarette trade has ballooned into one of South Africa’s most pressing economic and social crises. According to research commissioned by British American Tobacco South Africa (BATSA) and conducted by Ipsos, 76.7% of retailers nationwide now sell cigarettes below the government-mandated Minimum Collectable Tax (MCT) threshold. This figure has climbed sharply from just 27.4% in 2022, indicating a rapid expansion of the illegal market.

“BATSA also calls for the urgent introduction into the Customs & Excise
Act, of a Minimum Retail Price (MRP) of R37 per pack of 20 cigarettes,
which is an economically viable price when considering all taxes and
the lowest costs and margins in the legitimate supply chain.

“This would make it illegal to sell cigarettes below the MRP, providing
law enforcement with a simple, effective tool to identify non-compliant
products. Additionally, manufacturing licences should be revoked for
companies found to be consistently under-declaring their production
volumes or engaging in tax evasion,” Moloto said.

BATSA, IPSOS Research Report [8 July 2025]

“The Minimum Collectable Tax (MCT), specifically in the context of tobacco, is a tax floor designed to combat the illicit cigarette trade and ensure a minimum level of tax revenue is collected. It aims to make it unprofitable to sell cigarettes below a certain price point, thus discouraging the production and sale of illegal cigarettes.”

The vast majority of South African retailers are now selling cigarettes below the Minimum Collectible Tax (MCT) threshold of R26.22 per pack of 20. This is shocking, as the MCT serves as a key measure for assessing tax avoidance — clearly indicating that the overwhelming majority of retailers are dealing in non-compliant products.

South African Tobacco Transformation Alliance [11 July 2025]

Finance Minister Enoch Godongwana has underscored the severity of this issue. He has noted that up to R28 billion in tax revenue is lost annually due to illicit cigarette sales. This loss is equivalent to approximately R100 million every working day, severely undermining South Africa’s fiscal health, especially as SARS is aiming to close a tax collection gap estimated at R20 billion for the current financial year.

Further compounding the problem, other reports estimate losses from combined illicit tobacco and alcohol trade in the region of R30 billion annually. The illicit trade poses threats not only to government revenue but also to economic stability, governance, and the country’s investment attractiveness.

The Economic Impact: Beyond Lost Revenue

While the R28 billion lost annually in tax revenue is the headline figure, the economic consequences of illicit cigarette trade are far more extensive:

• Public Health Concerns: Illicit cigarettes frequently lack quality controls and may contain higher levels of harmful substances, exacerbating health risks among consumers and undermining tobacco control efforts.
• Job Losses in Legal Industry: The growth of the illegal market has led to a sharp decline in sales for legitimate manufacturers, suppliers, and retailers, threatening thousands of jobs across the legal supply chain.
• Strained Law Enforcement Resources: Continued expansion demands significant efforts from South African Revenue Service (SARS), police, and customs to combat illicit trade — often requiring sophisticated surveillance, technology, and multi-agency cooperation.
• Undermined Governance and Rule of Law: The pervasive presence of illicit trade facilitates corruption and money laundering, eroding public trust in government institutions and weakening South Africa’s ability to enforce laws effectively.

Government and Industry Response

The South African government, led by SARS, has launched various initiatives aimed at combating illicit cigarette trade. These measures include:

• Mandating Production Monitoring Devices (PMDs): To track tobacco product movements from production to point of sale.
• Proposed CCTV Installations: In manufacturing facilities, although legal challenges have delayed full implementation.
• Increased Enforcement Operations: Targeting large-scale illicit manufacturing and distribution networks.

Despite these efforts, studies find enforcement remains insufficient in deterring illegal trade, suggesting current tactics fail to address root causes of the problem.

The Consumer Side: Why Illicit Cigarettes Thrive

Price sensitivity plays a crucial role. Legal cigarettes in South Africa are heavily taxed, contributing to high retail prices. For many consumers facing economic hardships, illicit cigarettes provide a cheaper alternative, fueling demand. The wide availability and aggressive marketing by illicit manufacturers worsen the problem.

Additional factors supporting illicit trade include:

• Limited awareness about health risks of illicit cigarettes compared to legal products.
• Ineffective policing of small retailers and informal markets, where most illicit products are sold.
• Corruption enables smuggling and illegal supply chains.

Strategies Against Illicit Trade

Addressing this crisis requires a multipronged, coordinated approach:

1. Strengthening Enforcement and Surveillance: Expediting implementation of tracking technologies and increasing resources for SARS, police, and customs.
2. Targeting Local Illicit Manufacturing: Closing loopholes that allow local companies to produce and distribute illegal cigarettes.
3. Public Education Campaigns: Raising consumer awareness on the health and legal risks associated with illicit cigarettes.
4. Community Engagement: Encouraging reporting of illegal sales through hotlines and involving retailers in compliance efforts.
5. Cross-Sector Partnerships: Aligning government agencies, tobacco industry stakeholders, and civil society groups to formulate strategic responses.
6. Policy Review and Adjustment: Considering balanced tax policies that reduce incentives for illicit trade without undermining public health objectives.

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Illicit Cigarettes Threaten South Africa’s Economy and Health

The illicit cigarette trade in South Africa undermines the economy to the tune of R28 billion in lost tax revenue yearly, disrupts legal business, endangers public health, and jeopardizes governance. Despite government and private-sector interventions, the illegal market has not only persisted but grown, demanding intensified, innovative, and collaborative solutions.

SARS and other enforcement bodies face significant challenges in plugging the large “tax leak” fueled by local illicit manufacturing and widespread retail sales below legal prices. Comprehensive, decisive action is critical to safeguard South Africa’s economic stability, protect public health, and uphold the rule of law.

As the country prepares ahead of the 2026 budget, closing this illicit cigarette trade gap will be vital in bolstering fiscal resources and improving governance. The call for national prioritisation and coordinated efforts could be the turning point in a fight that impacts millions of South Africans every day.