TOBACCO CONFLATION – TWO IS NOT ALWAYS ONE
Lest we hastily forget the lessons learnt from the recent controversies surrounding a buzz-phrase invented by a foreign PR firm created to misdirect attention from unwanted interrogation, perhaps we should question every attempt at a buzz phrase:
The narrative of “smuggling” and “Illegal cigarette manufacturers” in the tobacco industry has been subject of a significant media spend by the big players in the industry. Whilst the Fair-Trade Independent Tobacco Association (“FITA”) fully supports, and benefits from, the crackdown on illegal sales, we do question the priority placed on what is conceivably the smaller of two evils; the bigger evil being questionable business practice, including tax-circumvention, minimal investment, and profit siphoning by foreign-owned multi-nationals.
FITA is a duly registered juristic entity in South Africa and comprises of 7 local tobacco manufacturers who have been actively trading in the economy for a number of years. As a collective, these manufacturers contribute significantly towards the economy directly by way of profit-generation, employment and job creation, and indirectly by way of corporate and personal income tax, customs and excise duties, value-added tax, municipal taxes and other levies and taxes associated with operating businesses in South Africa.
Our members are relatively new in the local tobacco industry, but we believe that we represent the majority of local manufacturers in the tobacco industry.
The traditional big players control over 85 % of the local tobacco market share, and yet employ no more than a pitiful 4000 people countrywide. In comparison the remaining share, in which the members of FITA operate, employs over 2000 skilled people countrywide. The contrast is dramatic; by extension FITA members employ 5 times the local talent per percentage of market share.
With modern driving factors and growth points of our South African economy being that of transformation, local manufacture and mass employment – is the practice of multi-nationals skimming their locally derived profits to their off-shore parent companies not neo-colonialism? Is it not at the expense of our economy and our people that the traditional big players are making their large profits?
FITA questions why there is no mass-media campaign against the draining of the fiscus through acts of tax-base erosion? Billions are leaking out of our economy annually through conglomerate boardrooms – illicit smugglers and illegal manufacturers are a mere smudge on the lenses when looking at the greater ethical crimes of big business. We refer to the publication in early 2014 to shareholders of a large tax debt, issued by the South African Revenue Service against a multi-national tobacco manufacturer.
While we support every effort of the state to weed out the damaging effects of illicit tobacco trading, we are weary of the smokescreen created – why arrest the pick-pocket at the expense of arresting the bank robber, when you should apprehend both? Or is the bank robber using his funds to create a false flag diversion to the pick-pocket?
We have stated on several occasions that a more holistic approach is required by the state to address losses to the fiscus – of which illicit manufacturing and smuggling form but a part. We appeal to the South African Revenue Service and other fiscal authorities to increase their efforts in the tobacco industry by extending their scope towards dealing with off-colour boardroom practices.
As small and mostly locally owned and based operations, such practices cannot be attributed to our members – the state will have to look elsewhere.
We maintain that sales of a locally manufactured product by locally owned firms contribute significantly to the transformation of the local tobacco industry, and provides a solution to the above in that it will allow the fiscus to benefit from an inclusive market where profits do not leave the shores of this country, and which inclusive market will result in a reduction in the illicit trade of cigarettes as it will push the majority of those currently engaging in said activity to become compliant in this environment which does not favour a monopoly of multinationals, and supports the local tobacco manufacturer.
Transformation of the local industry, where the local tobacco manufacturers are given are larger share of the currently skewered market, will not only benefit our fiscus, but will also benefit the South African consumer who will pay a fraction of the current market price for a packet of cigarettes in a more competitive, non-monopolistic market.
This is something as an organisation we urge the state to seriously consider as a more viable alternative with many more benefits to the economy and our fiscus than that proposed by our multinational counterparts.
Further to the above, we have also noted in the current media campaign being pushed by these multinationals that there still exists preferential treatment to some multinationals including but not limited to:
- Attendance of senior government officials at their conferences;
- Attendance of senior government officials at the business premises and factories;
- Their purporting to act on behalf of the entire local tobacco industry stakeholders;
- The ongoing publication of media statements intended to FITA members in the public domain;
- The proposed introduction and imposition of untested, cumbersome and restrictive regulations.
The evidence we have indicated suggests that the collaboration between multi-nationals and/or their agents with state officials and departments is incompatible with Article 5.3 of the World Health Organisation’s Framework Convention on Tobacco Control of which South Africa is a signatory. It is now very obvious that some of these multi-national manufacturers have been using the so-called “collaboration” with government officials and bodies on so-called Anti-Illicit Trade to:
• Circumvent the strictures of the Framework Convention on Tobacco Control and its International Tobacco Control Policy Evaluation Project. This they achieve by using so-called “cooperation” with authorities as a “Trojan Horse” to gain influence and access to areas of tobacco control which, were the provisions of the Framework Convention on Tobacco Control enforced, would be outside their reach. An example is their opposition to the proposed “Plain Packaging” on the spurious grounds that it will increase counterfeit and smuggled tobacco.
• It would seem that the campaign’s goal is to position and “present” themselves as part of the “solution” to end all illicit tobacco trade, and thereby increase their ability to influence policy in this area. It follows that this is an attempt to keep intelligence and law enforcement focus on the illicit tobacco trade, and therefore anywhere else but themselves.
We therefore call on government to ensure that all its departments and officials conduct their interaction with the tobacco industry strictly according to the Framework Convention on Tobacco Control and their International Tobacco Control Policy Evaluation Project. As things stand now, it appears that the only government department that seems to take the Framework Convention on Tobacco Control and their International Tobacco Control Policy Evaluation Project happens to be the Department of Health. We have expressed our scepticism and concerns on the latest proposed regulations issued by the South African Revenue Service during the festive season at very short notice in our press statement in January 2016.
We believe the time has come for all stakeholders to meaningfully deal with all the challenges facing the tobacco sector in South Africa and to ensure that the playing field is levelled for all. The old refrain of “smuggling” and “illicit manufacturing” being the primary cause of losses to the fiscus is now running thin. The fact of the matter is that billions are pilfered out of our economy annually by a handful of entities through aggressive profit-base erosion schemes. We firmly believe that the government should re-focus their resources and attention to include a more holistic approach to the industry. We further believe it incumbent on the state, and in fact its duty, to put measures in place that will level the economic landscape and give us as local employers and contributors to the economy, equal hearing and platforms. We believe the days of “big business” having some sway over how the state should direct its powers, actions and resources in the tobacco industry should now come to an end.
What are the big boys afraid of?