Big fight over online cigarette sales in South Africa

Tax Justice South Africa has accused Gold Leaf Tobacco Corporation (GLTC) of dodging taxes by illegally selling cigarettes online to customers.

GLTC is a member of the Fair-Trade Independent Tobacco Association (FITA), which took the government to court over its ban on tobacco products during the national lockdown.

Studies conducted during lockdown found that GLTC cigarette brands were popular on the black market, with 10 million RG cigarettes sold each day at greatly inflated prices.

Cigarettes are listed for sale on the GLTC website, where users can browse the various cigarette brands owned by the company but are required to register as a trade partner to view the prices.

This is no real obstacle, however, as users are simply required to enter their ID number, email address, and name to register as an “Individual Trade Partner”.

Once this is done, they may log in to the platform and order cigarettes, many of which are priced extremely cheaply – as low as R225 per carton including taxes.

No checks in place – Tax Justice SA

Tax Justice SA founder Yusuf Abramjee noted that it is against the law to sell cigarettes online, and said they tested the service and found that they were able to sign up in a minute and have cigarettes delivered with no issues.

“No doubt GLTC will argue that this is a legitimate trade deal, but this is a sham as no checks are carried out on online customers,” Abramjee said.

“Our investigations showed that even schoolchildren can register as a so-called trade partner.”

“Cigarettes were then delivered to a suburban residential address with no questions asked. They were even offering the option of cash on delivery – even for a single carton,” he said.

Abramjee also argued that there seemed to be tax irregularities regarding this online delivery system, as the tax due on a single R225 carton of RG Blue is R203.50, which leaves only R21.50 for revenue and courier expenses.

“Tax Justice SA will always call out criminals in the illicit trade and GLTC has a lot to answer for when it comes to illegal cigarettes,” Abramjee said.

FITA responds

FITA published a statement in response to Tax Justice SA in which it called the organisation’s targetting of GLTC an “obsession”.

“TJSA, for reasons only known to it, seems determined to turn a blind eye to the wrongdoings of multinational cigarette manufacturers and has only been seen to shift its focus to local independent cigarette manufacturers,” FITA said.

“We also reject any assertions that a FITA member is not paying the requisite taxes from the sale of cigarettes.”

FITA said it would engage with GLTC to ensure its methods comply with all relevant laws and also pointed to the “multinationals hellbent on preserving their market dominance”, stating that these companies allegedly deflect the attention of law enforcement away from their own “well-documented shenanigans” and towards their competitors.

“Most attention by law enforcement agencies, in the past and nowadays, appears to be focused primarily on micro-enterprises that trade in minute volumes and values of stock, which are made up of mainly informal traders,” FITA said.

“In addition, law enforcement agencies seem to be preoccupied with instances of smuggling and illegal manufacturing. FITA has always agreed with credible academic studies which suggest that these practices are often exaggerated for purposes of advancing the interests of multinationals.”

FITA did not address the experiment carried out by Tax Justice SA, which saw them order a carton of cigarettes delivered to a private residence.

The full FITA statement is available on the organisation’s website.

Legal issues

The law cited by Abramjee with reference to the prohibited sale of cigarettes through online platforms is the Tobacco Controls Act of 1993.

This legislation states the following:

(5) (a) No person shall sell, offer to sell, supply, distribute or buy any tobacco product through the postal services, the internet or any other electronic media.

(b) The prohibition contained in paragraph (a) does not apply to any commercial communication between a tobacco manufacturer or importer and its trade partners, business partners, employees and shareholders.

This law is referenced when users attempt to purchase cigarettes through the GLTC online portal, and shoppers are required to agree to the following terms before they check out:

I undertake to trade with the products which I, or the company (as the case may be), shall purchase as a trade partner and by virtue of the trade partnership to be registered herein with Gold Leaf Retail Trade Partners, in a lawful manner and in compliance with the provisions of the Tobacco Products Control Act, 83 of 1993 as amended (https://www.gov.za/documents/tobacco-products-control-act).

I accept that, should it be discovered that I, or the company (as the case may be), have provided any untruthful or incorrect details in the registration, or that I, or the company (as the case may be), have acted in contravention of the Tobacco Products Control Act, 83 of 1993 as amended (https://www.gov.za/documents/tobacco- products-control-act), or have misrepresented any information in any manner, my trading partner status may be immediately revoked and I will forfeit any benefits arising from the trade partnership agreement with Gold Leaf Retail Trade Partners.-

In the event that my conduct, or that of the company (as the case may be), is determined to be unlawful and/or in contravention of the Tobacco Products Control Act, 83 of 1993 as amended (https://www.gov.za/documents/tobacco-products- control-act), I undertake to indemnify and hold harmless Gold Leaf Retail Trade Partners (Pty) Limited and its associates from any costs of litigation, orders of damages, administrative penalties imposed, or otherwise.

This appears to place some responsibility of confirming the identity of legitimate trade partners on the buyers themselves, although Abramjee’s investigation shows that it was definitely possible to circumvent this.

Abramjee’s investigation is detailed below.

Yusuf Abramjee interview on eNCA

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Big fight over online cigarette sales in South Africa