bat south africa - Tobacco's economic contribution

There is more to the tobacco industry than the controversy surrounding its products. It is also a South African economic success story.  Together, the tobacco industry is proud to be contributing to the growth of our country.

Tobacco growing

Tobacco is grown in the Northern Province, Mpumalanga, North-West, Eastern Cape and Western Cape. There are some 300 registered farms planting around 10,000ha of tobacco in South Africa, with an estimated production of between 17 and 20 million kilograms of tobacco leaf per annum.

Tobacco leaf

Two classes of tobacco are produced in South Africa – flu-cured and dark air-cured tobacco. Cigarettes are manufactured principally from flu-cured tobacco, while pipe tobacco is largely made from air-cured tobacco.

Grower organisations

In South Africa, the processing facilities belong to tobacco farmers in the form of companies or co-operatives.  Farmers are paid for their tobacco at the point of delivery according to a valuation being placed on every bale of tobacco.  After this, the tobacco is processed and packed according to specifications of manufacturers and / or leaf dealers. 

Leaf dealers

Apart from farmer co-operatives and companies, tobacco merchants or leaf dealers are also important buyers in South Africa.  These companies are known as intermediary buyers.  They buy processed tobacco from processing plants according to specifications of their clients, who are manufacturers of tobacco products. 

Tobacco manufacturing

In South Africa, a range of tobacco products, including cigarettes, pipe tobacco, cigarette tobacco and snuff, are manufactured locally.  The manufacturing industry employs around 3,000 people. South African produced cigarettes are exported throughout Africa, the Middle East and Central Asia.

Trade and distribution

Some 60,000 retailers, 360 wholesalers and many thousands of informal traders are dependent, to a certain extent, on the sale of tobacco products. The tobacco industry is a source of employment and a large source of income for them.

Cigarette excise tax

Taxation on cigarettes in South Africa is collected by two methods: value added tax and specific excise duty levied on the product.

Value added tax, commonly known as VAT, is an ‘ad valorem’ tax, raised as a percentage of the price at time of sale. The rate of VAT is determined by the Minister of Finance and is currently set at 14 per cent.

Specific excise duty is a tax levied on each unit of a product and is not related to the value of the product. With cigarettes, the excise duty is expressed as a 'rand per thousand cigarettes' figure. The level of excise is determined by the Minister of Finance and is announced annually during the budget speech to Parliament. Excise duty becomes due for payment to South African Revenue Services (SARS) as soon as stock leaves the ‘bonded warehouses’ within our various storage depots.

The tobacco industry has experienced large increases in excise tax in recent years, with an increase of some 400 per cent between 1994 and 2004.

Community development

The tobacco industry in South Africa is well known for its investment in society. Many tobacco farmers have built and maintain schools and clinics on their farms. Manufacturers donate funds to various projects, including small farmer projects and water projects. The Tobacco Institute of South Africa (TISA), the industry body of which British American Tobacco South Africa plays a leading role, is in the process of finalising its BEE Business Plan, which includes extensive training of small scale growers, and an opportunity for young black agricultural students to complete their practical training year in the industry with the view of building a career in agriculture.