Business Maverick


After the Bell — court ruling gives illicit tobacco barons an unexpected boost

After the Bell — court ruling gives illicit tobacco barons an unexpected boost
A man buys a pack of cigarettes from a machine in Guenzburg, Germany, on 25 August 2003. (Photo: Sean Gallup / Getty Images)

Is it possible that in certain situations you have to pare back human rights to achieve justice? Instinctively, I’m horrified at the thought. But a recent case about the taxman installing cameras in cigarette factories has given me pause. Is it possible that cigarette-making machines have human rights? Have we gone truly bonkers?

This week, the SA Revenue Service (SARS) lost a case in the Pretoria High Court after cigarette makers represented by the Fair-Trade Independent Tobacco Association (Fita) tried to stop SARS from putting CCTV cameras inside their factories. 

The background here is simple: huge sums of tax income are being lost; the excise tax on cigarettes is now enormous. 

Therefore, the easiest way to gain market share is to sell cigarettes without paying the excise tax. Voilà! More money than you can think about. But to do that, you have to make cigarettes without anybody knowing you’re doing so. 

SARS is keenly aware that this dodge is happening and is struggling to prove its point. So what it tried to do was to put cameras into the factories of the most dodgy cigarette makers, and totally unsurprisingly, the dodgy cigarette makers objected.  

We know about the illicit tobacco industry because the legally compliant cigarette makers have seen their markets collapse. This means either people have stopped smoking (unlikely) or the dodgy cigarette makers are sliding small mountains of cigarettes out the back door. 

You would think just the fact that these cigarette makers are trying to resist SARS monitoring their behaviour is tantamount to an admission that they are, in fact, dodgy. 

Hence, open and shut case, right? 

Not so fast. The problem is that the Constitution is very specific on the issue of privacy. Section 14 of the Bill of Rights says: “Everyone has the right to privacy, which includes the right not to have… (a) their person or home searched; (b) their property searched; (c) their possessions seized; or (d) the privacy of their communications infringed.” 

The right to privacy is right up there with the right to life, dignity and liberty. 

So what SARS did, or what the government did, in this case, was to pass new regulations under the Customs and Excise Act stipulating that any warehouse used for manufacturing or storing tobacco products has to be placed under “constant, continuous and permanent surveillance” via CCTV.

In response, Fita argued that the CCTV rule gives SARS unfettered discretion that is not subject to any objective legal standard, and its implementation required no rationality on the part of the tax agency, Moneyweb has reported

Hence, Fita argues that the taxman, by trying to prevent tax evasion, is acting irrationally, which of course is nuts. 

But that didn’t stop Judge Linda Retief from finding that the CCTV’s continuous “search ability” resulted in a “perpetual means to search and continual means to collect evidence in spaces and at times which fall within the legitimate expectation of the privacy purview.” 

My response to the continuous nature of the monitoring would be, well, as it should be. How effective is monitoring if it’s not continuous? And what exactly are the “legitimate expectations of privacy” that cigarette-making machines have? 

It doesn’t stop here. One of the things the CCTV rule would allow is for SARS to record the number plates, make, and colour of the vehicles arriving or departing a dispatch or loading area. Fita argued this could result in loss if this information got out and the vehicles were robbed. 

The SARS legal team apparently scoffed at this idea, but the judgment says: “SARS counsel making light of this example forgets that the protection of compliant licensed taxpayers should surely outweigh creating a potential opportunity for illicit traders to obtain tobacco products”. 

Compliant, licensed taxpayers? Seriously? Who is kidding whom here? 

A recent report by global analysts Oxford Economics found that the illicit cigarette trade is robbing the South African economy of R27-billion in tax revenue annually, or about R74-million every day. 

The excise research unit at the University of Cape Town has stated that criminals’ share of South Africa’s cigarette market has skyrocketed by 1,100% in little over a decade. 

Yusuf Abramjee, founder of Tax Justice SA, said: “This court order is yet another gift for the illicit tobacco barons who are robbing South Africa of over R27-billion a year by flooding the market with tax-evading cigarettes.” 

It’s hard to disagree. 

But it is somewhat reflective of the ideology of SA’s courts that increasingly put human rights on a pedestal, which, of course, they are enjoined to do by the Constitution. But surely the human rights of taxpayers (i.e. actual humans) should also get a look-in here? 

Hopefully, this all gets corrected on appeal, because honestly… DM


Comments - Please in order to comment.

  • John Gurovich says:

    “The rain it raineth on the just
    And also on the unjust fella;
    But chiefly on the just, because
    The unjust hath the just’s umbrella.”
    ― Charles Bowen

  • Michael Evans says:

    Tim, you are spot on. That’s an appalling judgment. Constitutional rights can be limited in terms of section 36 of the Constitution. The right to privacy can be limited by the huge advantage of the camera system in cracking down on the illicit trade. FITA, which brought the application, allegedly represents most of the illicit traders. The legal traders in the tobacco sector all support the SARS camera initiative. Hopefully this crazy judgment will be appealed.

  • Robert Gornal says:

    If SARS knows that it is losing so much tax why can’t they put an official inside the factory to record the production and ensure the taxes are correctly paid.

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