Cape Town – The South African Revenue Service (SARS) is planning to introduce banknote-style security markers on cigarettes and other taxable products in a technology-driven crackdown on illicit trade, which costs the country billions of rand in lost revenue.
The proposed system will use electronic security markers, similar to those found on banknotes, to track individual cigarettes and alcohol products from manufacturing facilities through the distribution chain to retailers.
According to Daily Investor, the markers will be applied when products leave factories, enabling SARS and businesses to identify goods that are diverted into illegal markets or sold without the required excise duties.
South African Institute of Taxation (SAIT) chief executive Keith Engel explained to 702 that the technology would help prevent the illegal circulation of legitimately manufactured products.
“Effectively, it keeps cigarettes out of the illegal market, and it is a tracing method where all parties involved know that it is easily traceable,” Engel said.
Price difference
He added that the system would help SARS detect so-called round-tripping, where products are exported and subsequently brought back into the country without the appropriate taxes being paid.
“If the cigarettes leave the factory and are then sold to somebody who exits the country and tries to bring them back in, you can count them and collect the excise tax,” he said.
EWN, reporting on the proposed initiative on Tuesday, 27 October, said SARS Commissioner Dr Ngobani Johnstone Makhubu was seeking partners to develop the intelligent markers, which could initially cover cigarettes and alcohol before being extended to fizzy drinks and other excisable products.
The scale of the problem is reflected in the price difference between legal and illegal cigarettes.
SARS estimates that the cheapest illicit pack of cigarettes sells for approximately R5, compared with R37 for the cheapest legal pack. The minimum collectable tax on a pack of cigarettes is R27.12, making it difficult for legitimate manufacturers and retailers to compete with untaxed products.
Compliance plans
According to research by Oxford Economics, illicit cigarette trading cost South Africa an estimated R85.6 billion in lost tax revenue between 2019 and 2022.
The Consumer Goods Council of South Africa estimates that illicit trade across 11 sectors costs the country approximately R68 billion in tax revenue annually.
Meanwhile, TimesLIVE, in its report on SARS’s excise compliance plans, highlighted the revenue service’s broader ambition to introduce smart, traceable labels across categories of excisable goods, supported by more sophisticated production-monitoring technology.
Finance Minister Enoch Godongwana also indicated during the Medium-Term Budget Policy Statement that SARS was strengthening customs and excise enforcement through improved cargo scanning, track-and-trace capabilities and frontline operations.
However, the proposed technology faces implementation and enforcement challenges.
Illegal market
Engel acknowledged that introducing the markers would be expensive but argued that the potential recovery in tax revenue could justify the investment.
He also cautioned that the system might not completely eliminate illicit trading, particularly among informal retailers operating outside the formal distribution network.
“You can still sell to the wholly illegal market,” he said, warning that businesses operating entirely outside the formal economy could remain difficult to monitor.
The initiative forms part of the government’s broader National Illicit Economy Disruption Programme, which seeks to disrupt organised criminal networks, protect legitimate businesses and recover revenue lost through illegal trading.
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Compiled by Betha Madhomu
