THE SADC REVIEW OF ILLICIT EXCISE TRADE 2010/11

1. THE SADC REVIEW OF ILLICIT EXCISE TRADE 2010/11 LIZ ALLEN July 2014

2. WHAT IS SADC? • The Southern African Development Community (SADC) is an inter-governmental organization formed in 1980 with headquarters in Gaborone, Botswana. www.SADC.int • Its goal is to further socio-economic cooperation and integration and political and security cooperation among 15 Member States. • The SADC Treaty sets out its aims which are implemented through a series of Protocols supported by a more detailed Regional Indicative Strategic Development plan (RISDP).

3. SCOPE OF SADC • Anti-corruption, firearms, health, education, development and co-operation, strategic planning and food security. • In some areas, the aim is cooperation and coordination e.g. Foreign policy. • In trade and economic policy, a tighter coordination is in progress with a view to one day establishing a common market with common regulatory institutions.

4. WHICH COUNTRIES ARE IN SADC? • The Southern African Development Community consists of: Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho, Madagascar (suspended), Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe. • Population size 2010 : 257, 726,000 (257.7 Million inhabitants). Gross Domestic Product (GDP) : 471,118 US$ billion (471.1 US$ billion).

5. THE SADC REVIEW OF ILLICIT EXCISE TRADE -2010/11 TERMS OF REFERENCE Briefly: “to evaluate the extent of and provide recommendations for solutions for combating the illicit trade in excisable products in the SADC region, with particular emphasis on the illicit trade in alcoholic beverages and tobacco products.”

6. BACKGROUND TO THE REVIEW • SADC Secretariat commissioned the review at the request of the SADC Tax Subcommittee. • Study of over 6 months funded through the EU in support of implementation of the SADC Protocol on finance and Investment (FIP). • FIP contains an Annex on regional tax cooperation - including excise. • Two Excise specialists recruited through GFA/DNA covering both policy and administration aspects.

7. STATUS OF THE REVIEW • The study report including recommendations was validated by the SADC Tax subcommittee • The report has been released into the public domain but SADC owns the intellectual rights to all aspects of the study. • I have a duty of confidentiality, but SADC has authorised me to present to you as one of the consultants engaged in the study.

8. CONDUCT OF THE REVIEW • Questionnaire – designed and sent to all Member States • Inception – Research and planning selection of countries to visit, detailed itinerary requirements • Country Visits to: • SOUTH AFRICA • ZIMBABWE • NAMIBIA • SWAZILAND • ZAMBIA • MOZAMBIQUE

9. FINDINGS - CIGARETTES • Illicit trade in cigarettes is a significant problem resulting in considerable leakage of tax revenue across SADC potentially a minimum of approximately US$350 million a year • The amount of revenue leakage for cigarettes in South Africa alone is estimated at US$323 million.

10. ESTIMATES (BY INDUSTRY) OF ILLICIT TRADE IN OTHER COUNTRIES VISITED Cigarettes • 12% to 15% of total consumption in Namibia • 10% to 13% of total consumption in Zambia • 10% to 12% of total consumption in Swaziland • 1% to 2% of total consumption in Mozambique • Minimal proportion in Zimbabwe

11. NATURE OF ILLICIT TRADE - SADC Cigarettes • Main source countries in region are Zimbabwe and, to a lesser extent, South Africa, Mozambique and Malawi. • Some counterfeit and contraband from Dubai and counterfeit from China (reduced since World Cup 2010 • Destination country – mainly South Africa but illicit cigarettes find their way into all countries • Transit countries – Namibia, Botswana, Swaziland, Mozambique, Zambia, Tanzania.

12. FINDINGS - ALCOHOL • Illicit trade in alcohol for most of the countries visited is a significant problem resulting in considerable leakage of tax revenue across SADC potentially a minimum of approximately US$115 million a year. • The amount of revenue leakage for alcohol in South Africa alone was estimated at about US$96 million.

13. ESTIMATES (BY INDUSTRY) OF ILLICIT TRADE IN OTHER COUNTRIES VISITED Alcohol • Swaziland - no estimate available - one importer estimated legitimate sales had decreased by 40% in 2010. • Mozambique - estimate 50% of nationally produced spirits and over 50% of imported spirits are illicit. • Namibia - industry’s rough estimate was “less than 10%” illicit but growing. • Zambia - unofficial estimate of excise loss of about K15bn a year (over $3 million) excluding opaque beer. • Zimbabwe - industry estimate of illicit alcohol was between 100,000 and 150,000 litres a month and growing.

14. NATURE OF ILLICIT TRADE Alcohol • Source countries for finished products - South Africa and Europe (via South Africa and Namibia), Mozambique and Zambia. • Source countries for bulk spirits - S. Africa, Swaziland, Zimbabwe and Malawi. • Destination countries for finished products -Mozambique and Zambia. Particular concern - small plastic sachets of fruit-flavoured high strength spirits and small plastic bottles of spirits.

15. COUNTER MEASURES Good Practice • South Africa – tax policy, action plans to combat illicit trade, modernization programme , partnerships with industry, comprehensive anti-corruption strategy. • Zimbabwe – clear and stable organisation, professional training centre and effective Mutual Assistance enquiries handling. • Namibia – investment in scanners, commitment and enthusiasm . • Swaziland – comprehensive plan to transform excise & customs. • Zambia – profession and national approach to excise control and comprehensive anti-corruption strategy and supporting activities. • Mozambique – clear structure, strong organisation & focus on customs enforcement, investment in scanners, successful mutual assistance and international co-operation efforts.

16. AREAS FOR IMPROVEMENT • A strategic approach to tackling the illicit trade in alcohol and tobacco products is needed including: • Zero-tolerance of corruption • A balanced evidence based tax policy leading to specific duty structure and potential tax harmonisation • Reliable and complete data • Understand the size and nature of the enemy • Targeted enforcement strategy and action plans across all enforcement agencies • Implement regional customs transit system • Investment in one-stop-border posts, training, more scanners, sniffer dogs and better examination facilities

17. AREAS FOR IMPROVEMENT Continued • Clear, straightforward and appropriate excise administration policies and legislation • Appropriate offences, penalties and a judiciary aware of the seriousness of excise fraud and smuggling • A national professional focus on excise control • Supply chain controls on products and on wholesale and retail outlets • E-filing and inclusion of excise in modernisation programmes • Raise capacity and capability of officials • Mutual assistance between Member States

18. RECOMMENDATIONS A SADC Strategy to Tackle Illicit Trade to overarch Member States individual strategic programmes. 1. Move towards a harmonised approach to excise taxation. 2. Co-ordination and support for better control and enforcement (through the SADC Tax Sub-Committee). 3. Capability building

19. A HARMONISED APPROACH SADC should - • Fast track the development of excise guidelines; • Promote the concept that the ability to manufacture, warehouse or move excise goods under bond should be a privilege not a right; • Develop a SADC wide requirement for excise specific licensing of all transporters of excise goods under bond; and • Develop a regional requirement for excise producers to hold bonds/financial security sufficient to cover revenue at risk.

20. HARMONISED APPROACH Contd. • Develop and promote adherence to a strict Code of Ethics for all Customs and Revenue officials; • Facilitate agreement of a long term phased plan for all Member States to move from ad valorem to specific rates of tax for excise products; and • Provide Member States with support in adapting administration and controls.

21. CO-ORDINATION AND SUPPORT FOR BETTER CONTROL AND ENFORCEMENT Through the SADC Tax Sub-Committee/Indirect Tax Working Group, SADC should: • Set up a permanent Excise Working Group; • Facilitate the identification by Member States of the most useful data to collect to support policy evaluation and effective control and enforcement; • Maintain and analyse the regional database and compare the product quantity gap with the size of the illicit trade estimated in each Member State; • Set up a regional forum with the alcohol and tobacco industry representatives specifically to tackle illicit trade.

22. CO-ORDINATION AND SUPPORT FOR BETTER CONTROL AND ENFORCEMENT • Promote a consistent regional approach to the implementation of standards required for the track and trace component of the FCTC; • Facilitate the speedy introduction of the proposed SADC Community Transit System; • Facilitate the moves to one-stop-shop border posts supported by scanners and facilities for examining tankers at key points in the region; • Facilitate the development of a regional approach to control of the wholesale and retail supply chain for alcohol and tobacco products;

23. CO-ORDINATION AND SUPPORT FOR BETTER CONTROL AND ENFORCEMENT • Fast-track the implementation of the recently signed SADC Agreement on Assistance in Tax Matters (AATM) and develop effective administrative procedures to support control and enforcement. • Under the AATM, set up an early project to enable speedy electronic access to data on all excise operators, bonded warehouses and licensed excise transporters by enforcement and excise staff in Member States.

24. REGIONAL EXCISE GUIDELINES • Common Tax Structure/Definitions/Bandings • Exemptions/Reliefs • Specific Tax Structure for Tobacco Products • Tax Point/Bonded Warehouse Facilities • Registration/Licensing of Excise Operators • Register of Excise Operators and Access to data • Powers, Offences and Penalties • Capacity building including specialist excise training and guidance

25. WHAT NEXT? • SADC Excise Working Group set up 2011. • Work commenced on developing guidelines for the coordination of excise taxes in the SADC Region in December 2011. A major and ambitious undertaking. • First draft produced in March 2012 . • Second more detailed draft scheduled for December 2014. • Status reported to the SADC Ministers of Finance at regular intervals. • Future work might include implementation guidelines for the Illicit Trade Protocol.

26. SEND QUERIES TO: Ms LeefaPenehupifo Martin, CPRP, ndp (zw) btech (SA) MA (Uk) - Head: Public Relations Unit, Office DGP31 Ground Floor, SADC Headquarters Plot 54385 CBD, Private Bag 0095 Gaborone, Botswana • Tel:  + 267 395 1863 (Extn 1084) •         :  + 267 3611084 (DirDialing) •         :  + 267 3181293Dir • Cel:  + 267 73831177 • Fax: + 267 397 2848/3281070 • Email: LMartin@sadc.int • Website: www.sadc.int

27. THANK YOU