MEDUPI LAMOLA | Hiking alcohol, tobacco tax fuels illegal trade

A worker at a cigarette factory may see their work as unglamorous, but it pays the bills and puts food on the table in a country with a shocking unemployment rate of 31.4%. However, the announcement by one of the biggest cigarette manufacturing brands that it will close its local factory by the end of 2026 shatters the dreams of many workers and their families − who are collateral damage in a war the government claims it is fighting but whose weapons are aimed at its own soldiers. In his 2026 budget speech, finance minister Enoch Godongwana conceded that “the recent announcement by a major tobacco producer that it will close its local operations is a stark reminder of the impact of illicit trade on jobs and the overall economy”.

He then outlined the enforcement plans by the SA Revenue Service to continue its operations with the Border Management Authority, the police and the army to combat and stop the illicit trade in tobacco and alcohol. This may sound decisive, but you cannot fight an enemy with one hand while funding its army with the other. And that’s what our annual sin tax increases are doing.

Making legal products even more expensive through taxes pushes more consumers towards illegal suppliers who pay no tax and employ no one. The numbers are staggering. Illicit alcohol costs the fiscus R11bn a year, while illicit tobacco robs the state of over R18bn.

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While Godongwana speaks of dismantling supply chains for illicit goods, he should realise that the same supply chains exist to meet demand. Every sin tax hike creates new demand for illicit products due to their affordability. While government policy has worsened the crisis of illicit trade, brands have no option but to adapt.

The affected industries dealing with alcohol, tobacco and, to an extent, sugar products can reposition against illicit goods while remaining profitable. Illicit trade thrives where formal distribution is weak. Brands must become community champions.

They must invest in visible, secure and convenient points of sale in townships and rural areas. They should partner with local spaza shops and taverns where they can provide branded fridges, umbrellas, signage, and even security upgrades. They need to make the legal purchase path as easy as the illegal one.

When a community sees a brand investing in their safety, brand loyalty follows. Alcohol and tobacco brands must unite to demand a differentiated tax model that punishes illicit traders rather than compliant ones. If Godongwana is sincere about the national effort he has pronounced against illicit trade, he can start by aligning tax policy with enforcement goals, investing in real enforcement to ensure compliance, implementing minimum unit pricing thoroughly and formalising and not criminalising the informal sector. Fighting illicit trade requires honest fiscal policy that does not create the very problem it claims to solve.

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