PROJECT: THE ILLICIT CIGARETTE TRADE IN SOUTH AFRICA
- isabels39
- Aug 13
- 5 min read
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South Africa hosts one of the largest illicit markets for cigarettes in the world.
The trade surged during and after the COVID-19 lockdowns, and by multiple independent estimates,
it has accounted for roughly half to three-quarters of the total cigarette market in recent years.
Beyond lost tax revenue, it fuels organised crime, hijackings, money laundering, corruption, and violent turf wars.
English translation of Interview with Mr. Mike Bolhuis
SCALE AND RECENT TRENDS:
Independent research (Vellios & van Walbeek, BMJ Open) shows the illicit share rose from about 5% in 2009 to a peak of ~59.7% in 2021, and remained at ~57.6% in 2022.
That equals around 19–20 billion illicit cigarette sticks in 2021–2022, compared with only 14.3 billion tax-paid sticks in 2022.
TRACIT’s 2025 review confirms the ~60% peak and cites a government estimate of ~R18 billion in lost revenue in 2022 (excise + VAT), with cumulative excise + VAT losses of ~R119 billion between 2002 and 2022.
Industry surveys (Ipsos/BATSA) have found that 59–76% of retail outlets sell cigarettes below the minimum tax threshold, a clear sign of widespread evasion.
LOST REVENUE AND FISCAL COSTS:
Academic estimates place lost excise revenue for 2022 at ~R14.5 billion, with an additional R3.1 billion in lost VAT when factoring in behavioural adjustments (demand drop if illicit supply vanished).
Industry and lobby groups often present higher figures — R24–R28 billion annually — by multiplying estimated illicit sales volumes by tax per pack without adjusting for demand elasticity. The gap between these figures is methodological.
CRIME, CORRUPTION AND THE ILLICIT CIGARETTE TRADE:
The illicit cigarette market is not just a revenue problem — it is a critical enabler of organised crime in South Africa.
Illicit cigarettes serve as tools for organised crime, hijacking operations, and money laundering:
Organised crime integration: Syndicates use cigarettes as part of diversified operations alongside drugs, counterfeit goods, and fuel theft. Their high value-to-volume ratio makes them ideal for smuggling and black-market trading.
Hijacking operations: Trucks transporting both legal and illicit loads are regularly targeted, with stolen goods entering informal retail networks, including spaza shops, hawkers, and taverns.
Money laundering: Proceeds from illicit cigarette sales are recycled through front businesses or offshore channels. The Gold Leaf Tobacco Corporation case illustrates this — SARS accused the company of evading R2.5 billion in income tax and R356 million in VAT, and laundering up to R3 billion with help from corrupt bank officials, prompting a R4.8 billion damages claim.
Competition in the illicit market is often violent — involving factory arson, machinery sabotage, assassination attempts, and intimidation of rivals.
Corruption at customs, police, and political levels protects these networks, making convictions rare despite NPA referrals.
This trade generates vast, untraceable cash flows, funding other forms of organised crime, eroding public trust in state institutions, and undermining national security.
WHO SUPPLIES THE ILLICIT MARKET?
While some illicit cigarettes are smuggled from neighbouring countries, much of the supply is produced locally, often in SARS-approved factories under-declaring production.
Weak oversight of warehouses and manufacturers, along with bribery of officials, allows large volumes to bypass taxation entirely.
PUBLIC HEALTH AND SOCIAL CONSEQUENCES:
Cheap illicit cigarettes undermine tobacco-control policy by keeping smoking affordable for low-income groups, negating the health benefits of higher excise taxes.
Widespread availability makes it harder to reduce smoking prevalence and associated long-term health costs.
LAW ENFORCEMENT:
SARS, SAPS, the Hawks, and customs have intensified raids, factory inspections, and seizures, and are introducing track-and-trace technology to monitor cigarette production.
Despite these measures, enforcement remains resource-constrained — South Africa has 54 official border points, many poorly equipped, making cross-border smuggling difficult to contain.
WHY THE MARKET EXPLODED:
Key drivers include:
The COVID-19 sales ban in 2020 created unmet demand and expanded underground distribution networks that persisted post-ban.
Inflation and excise hikes made legal products unaffordable for many smokers.
Weak manufacturing oversight, including under-declaration and illicit factory production, went largely unchecked.
Organised criminal capability, such as existing smuggling routes and corruption, enabled large-scale distribution.
To disrupt the illicit market, experts recommend:
Tighter manufacturing and warehouse oversight with 24/7 surveillance.
Product marking and digital track-and-trace systems to ensure tax compliance.
Targeting financial flows through anti-money-laundering enforcement.
Public-awareness campaigns to reduce consumer demand for illicit goods.
The illicit cigarette trade in South Africa is a multi-billion-rand criminal industry. At its peak, it captured around
60% of the total market, costing the state up to R18–R28 billion per year in lost tax revenue.
But beyond the economic damage, it funds organised crime, fuels violence, entrenches corruption,
and weakens public institutions. Tackling it will require coordinated enforcement, corruption crackdowns,
stronger border control, and robust oversight of domestic manufacturing —
alongside persistent public health efforts to reduce smoking overall.
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