The South African Revenue Service (Sars) estimates that it suffered an excise revenue loss of about R40bn between 2020 and 2025 due to the illicit trade in tobacco products, with some other studies estimating an even higher loss. The illicit trade worsened during the ban on cigarette and tobacco sales during the Covid-19 pandemic, finance minister Enoch Godongwana said. Cigarette producers regularly complain that the high annual increase in excise duty on their products adds to the price and drives consumers onto the black market, as illegally manufactured cigarettes are considerably cheaper.
Godongwana explained the Treasury’s approach to excise duty increases in a written reply to a parliamentary question by ActionSA MP Alan Beesley. He wanted to know, among other things, how the Treasury justified the continuation of above-inflation excise increases and whether it would consider a review of excise policy to balance public-health objectives with economic and fiscal realities. The tobacco and alcohol industries regularly complain about the high excise duties imposed on their products in successive budgets.
“National Treasury takes a differentiated approach to excise duties adjustments on an annual basis. This takes into consideration the different dynamics of the tobacco and alcohol products markets, the scale of illicit trade, revenue collection from the industry and the fiscal or budget requirements. Hence, National Treasury has not increased excise duties on cigarettes and cigarette tobacco above expected inflation since the 2023 budget,” Godongwana said.
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“The inflationary excise increases implemented took into consideration the impact of Covid-19 measures on the increase in illicit trade, especially for the cigarette market. Limiting excise increases to expected inflation has allowed for the revenue from cigarette and cigarette tobacco to recover by 8.7% from R8.3bn in 2023/24 to R9bn in 2024/25, albeit not to pre-Covid levels of R14bn in 2019/20.” Godongwana said that for alcohol products, historical revenue collection data showed that, on average, the excise duty rate increases had resulted in a more than proportional positive effect on revenue collection. The Treasury took a differentiated approach to excise increases given the annual fiscal requirements.
“National Treasury engages in periodic policy reviews, including on excise policy. The latest policy review is related to alcohol tax policy, where a discussion paper was published in November 2024 and is currently undergoing stakeholder consultation. This process seeks to further develop an appropriate excise policy framework, taking into consideration the impact of alcohol excise duties on the industry and the economy.” The policy proposed a minimum unit price mechanism that would set the price floor below which no unit of alcohol should be sold.
The minister said Sars was implementing a number of compliance measures, including collaborating with other law enforcement agencies to address illicit trade. In 2024/25 there were 576 seizures of illegal products worth R265m, and in 2025 to September, there were 233 seizures worth R135.5m. A total of 28 ongoing audits were under way with a combined potential value of R6bn.
There have been 94 seizure cases so far this year involving 77-million cigarette sticks valued at more than R133m. CCTV cameras had been installed at manufacturing sites and six manufacturing licences had been suspended.
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