Botswana, a landlocked country, is currently experiencing a surge in the amount of illicit tobacco trade, a development which, if left unchecked will have disastrous impact on the country’s economy and image at large. As a result of these developments, Botswana is set to lose millions in unpaid taxes, in addition to a possibility of closure or downscaling of some compliant tobacco companies who are paying annual taxes. This is because they are currently facing unwarranted competition coming from underground players, as they (underground players) sell at cheaper prices since they do not pay due taxes.
This week, Botswana Guardian interviewed a businessman located within Gaborone’s main bus rank, who has been forced to shut down his cigarette distribution operations due to declining sales volumes as customers opted for cheaper and illegal cigarettes. “I used to buy a cartoon of Peter cigarettes for P570.00 for resell,” said the youthful businessman. He explained that the same Peter Stuyvesant, in a cartoon was being sold for just under P500.00. He later learnt the cheaper cigarette cartoon was a fake one, hence the lower price. “Looking at the numbers, it was not easy for me to compete.
In our trade, our customers are price sensitive, which means they will always go for the lowest prices no matter circumstances. The problem became worse during the height of COVID-19 and it continued even post lockdowns. In the end, I was left with no option but to close,” said the dejected business owner who refused to be named as he operates a separate and unrelated business at the rank. According to the trader, while occasionally police will raid those selling counterfeit tobacco products, the business is flourishing, as most illegal traders do not sell openly on display, but under the counter. According to industry players, the local tobacco industry is also chocked up by an influx of illicit and non-compliant cigarettes in the form of Chelsea, Wish, Shasha, Caspian, among others. Chelsea is smuggled into Botswana from Zimbabwe through Francistown.
Wish, that is also consumed in Botswana, originates from Zambia. On the other side, a local manufacturer, continues to outwit law enforcement authorities and still manages to produce Caspian and Shasha for the Gaborone market. Available data shows that, most of the smuggled and illicit tobacco products originates from Zimbabwe, the foremost producer of tobacco in Africa. In fact, an authoritative report by World Bank under the title, Southern African Customs Union (SACU): Addressing the Illicit Flow of Tobacco Products, has confirmed this. “Aside from locally manufactured illicit sticks, a significant source of illicit cigarettes imported into all of the SACU countries is widely believed to be Zimbabwe, where it is estimated that six factories are manufacturing more than 20 brands of cigarettes.
While no academic or official study could be found detailing the smuggling routes that feed the illicit trade across SACU, it is possible to piece together a view based on customs agency experience and limited-scope information in the public domain,“ states the World Bank report. An insider has told Botswana Guardian that, some of the illicit and smuggled products ultimately ends up in neighbouring such as South Africa and Zambia. The mode of transport here is normally cross border trucks and busses. According to a source, thanks to ‘connections’ between these drivers and customs officials, such products more often than not, pass with ease.
Botswana, which is a member of SACU, is now seen as a main route in which smuggled and illicit cigarettes pass through to an even bigger market like South Africa. Last year, South African police in the North West province arrested a truck driver for possession of illicit cigarettes worth more than R4.8 million at the Kopfontein border with Botswana, near Zeerust. It is easy to detect illicit tobacco in Botswana, despite limited enforcement by authorities. For example, a pack of 20 cigarettes must pay no less than P23.00 in Excise and VAT taxes. This is the Minimum Collectable Tax (MCT) applicable to every single pack of cigarettes sold in Botswana.
However, all the above-mentioned tobacco products (illicit) are being priced way below the MCT since they are largely sold in the informal trade by hawkers. All cigarettes sold in SACU must have a Consumer Toll-Free Number on the packaging. Cigarettes that don’t have a Toll-Free number are non-compliant with applicable regulations and constitute illicit products.
However, most, if not all the above-mentioned cigarettes brands have toll free numbers. In addition, illicit cigarettes do not normally adhere to prescribed levels of tar and nicotine. Botswana's war against illicit tobacco, has been made worse by the amendment of the Tobacco Control Act last year. Players in the sector have suggested several measures which they believe can help to curtail illicit tobacco in the country and elsewhere. “A comprehensive approach is required to deal with the illicit trade challenges the revenue authorities face. A full value chain solution is required to intervene and disrupt the illicit trade in the short to medium term with specific long-term solutions,” said an industry report.
Among the solutions that law enforcement officers can deploy is to strengthen factory controls, which among others include volume verification and customs presence. Authorities are also supposed to closely monitor sales that are below MCT especially at wholesale level. There is also need to tighten border controls as well as enforcing the power of destruction as set in the Excise Act.
In addition, authorities also need to improve forensic capability, especially those that supports product enforcement, identification and prosecution for counterfeit. While Botswana is right at the center of illicit tobacco trade and smuggling, the most affected institution will perhaps be Botswana Unified Revenue Service (BURS), which is the local tax authority. Already BURS is struggling to meet its tax collections targets amid the fragile economic recovery that has been mostly caused by COVID-19.
In Botswana, the biggest tobacco company is British American Tobacco Botswana, which is also the biggest tax payer within the tobacco industry. Available data shows that, BAT Botswana alone contributes P131 million (in 2020) locally in total taxes to the fiscus – and an additional P153 million is excise only paid to SACU. In the past 3 years, BAT Botswana has paid an estimated P968 million total revenues both locally and to SACU.
BAT Botswana alone supports an estimated 25,000 livelihoods in the value chain. However, with the increasing incidents of smuggled and illicit tobacco, experts believe companies such as BAT Botswana, who are paying due taxes which supports the broader economic development are likely to be negatively impacted. Botswana’s formal tobacco sector is still coming to terms with the controversial passing of the amended Tobacco Control Act, which is also expected to further stifle players, while giving illegal tobacco traders a smooth sail.
This week, Botswana Guardian interviewed a businessman located within Gaborone’s main bus rank, who has been forced to shut down his cigarette distribution operations due to declining sales volumes as customers opted for cheaper and illegal cigarettes. “I used to buy a cartoon of Peter cigarettes for P570.00 for resell,” said the youthful businessman. He explained that the same Peter Stuyvesant, in a cartoon was being sold for just under P500.00. He later learnt the cheaper cigarette cartoon was a fake one, hence the lower price. “Looking at the numbers, it was not easy for me to compete.
In our trade, our customers are price sensitive, which means they will always go for the lowest prices no matter circumstances. The problem became worse during the height of COVID-19 and it continued even post lockdowns. In the end, I was left with no option but to close,” said the dejected business owner who refused to be named as he operates a separate and unrelated business at the rank. According to the trader, while occasionally police will raid those selling counterfeit tobacco products, the business is flourishing, as most illegal traders do not sell openly on display, but under the counter. According to industry players, the local tobacco industry is also chocked up by an influx of illicit and non-compliant cigarettes in the form of Chelsea, Wish, Shasha, Caspian, among others. Chelsea is smuggled into Botswana from Zimbabwe through Francistown.
Wish, that is also consumed in Botswana, originates from Zambia. On the other side, a local manufacturer, continues to outwit law enforcement authorities and still manages to produce Caspian and Shasha for the Gaborone market. Available data shows that, most of the smuggled and illicit tobacco products originates from Zimbabwe, the foremost producer of tobacco in Africa. In fact, an authoritative report by World Bank under the title, Southern African Customs Union (SACU): Addressing the Illicit Flow of Tobacco Products, has confirmed this. “Aside from locally manufactured illicit sticks, a significant source of illicit cigarettes imported into all of the SACU countries is widely believed to be Zimbabwe, where it is estimated that six factories are manufacturing more than 20 brands of cigarettes.
While no academic or official study could be found detailing the smuggling routes that feed the illicit trade across SACU, it is possible to piece together a view based on customs agency experience and limited-scope information in the public domain,“ states the World Bank report. An insider has told Botswana Guardian that, some of the illicit and smuggled products ultimately ends up in neighbouring such as South Africa and Zambia. The mode of transport here is normally cross border trucks and busses. According to a source, thanks to ‘connections’ between these drivers and customs officials, such products more often than not, pass with ease.
Botswana, which is a member of SACU, is now seen as a main route in which smuggled and illicit cigarettes pass through to an even bigger market like South Africa. Last year, South African police in the North West province arrested a truck driver for possession of illicit cigarettes worth more than R4.8 million at the Kopfontein border with Botswana, near Zeerust. It is easy to detect illicit tobacco in Botswana, despite limited enforcement by authorities. For example, a pack of 20 cigarettes must pay no less than P23.00 in Excise and VAT taxes. This is the Minimum Collectable Tax (MCT) applicable to every single pack of cigarettes sold in Botswana.
However, all the above-mentioned tobacco products (illicit) are being priced way below the MCT since they are largely sold in the informal trade by hawkers. All cigarettes sold in SACU must have a Consumer Toll-Free Number on the packaging. Cigarettes that don’t have a Toll-Free number are non-compliant with applicable regulations and constitute illicit products.
However, most, if not all the above-mentioned cigarettes brands have toll free numbers. In addition, illicit cigarettes do not normally adhere to prescribed levels of tar and nicotine. Botswana's war against illicit tobacco, has been made worse by the amendment of the Tobacco Control Act last year. Players in the sector have suggested several measures which they believe can help to curtail illicit tobacco in the country and elsewhere. “A comprehensive approach is required to deal with the illicit trade challenges the revenue authorities face. A full value chain solution is required to intervene and disrupt the illicit trade in the short to medium term with specific long-term solutions,” said an industry report.
Among the solutions that law enforcement officers can deploy is to strengthen factory controls, which among others include volume verification and customs presence. Authorities are also supposed to closely monitor sales that are below MCT especially at wholesale level. There is also need to tighten border controls as well as enforcing the power of destruction as set in the Excise Act.
In addition, authorities also need to improve forensic capability, especially those that supports product enforcement, identification and prosecution for counterfeit. While Botswana is right at the center of illicit tobacco trade and smuggling, the most affected institution will perhaps be Botswana Unified Revenue Service (BURS), which is the local tax authority. Already BURS is struggling to meet its tax collections targets amid the fragile economic recovery that has been mostly caused by COVID-19.
In Botswana, the biggest tobacco company is British American Tobacco Botswana, which is also the biggest tax payer within the tobacco industry. Available data shows that, BAT Botswana alone contributes P131 million (in 2020) locally in total taxes to the fiscus – and an additional P153 million is excise only paid to SACU. In the past 3 years, BAT Botswana has paid an estimated P968 million total revenues both locally and to SACU.
BAT Botswana alone supports an estimated 25,000 livelihoods in the value chain. However, with the increasing incidents of smuggled and illicit tobacco, experts believe companies such as BAT Botswana, who are paying due taxes which supports the broader economic development are likely to be negatively impacted. Botswana’s formal tobacco sector is still coming to terms with the controversial passing of the amended Tobacco Control Act, which is also expected to further stifle players, while giving illegal tobacco traders a smooth sail.
