The South African Revenue Service has warned the National Treasury that funding constraints are limiting its ability to push back against the syndicates behind a surge in the illicit economy, whose growth has outstripped the formal economy for more than a decade, peaking at 10% of GDP.
In its 2026/2027 annual performance plan, Sars highlights the growth of the illicit economy, with high-risk areas being tobacco, alcohol, fuel, gold and crypto-related activities.
It says that during the 2026 medium-term expenditure process, Sars submitted a request for a baseline correction in response to the persistent structural underfunding that had built up across successive budget cycles.
Despite the “urgent need to restore funding to reflect Sars’s actual cost drivers”, the document says, the preliminary allocation for financial 2027 introduces further cuts of R76.6m, with an additional R157.3m cut the following year.
The performance plan says underfunding will jeopardise Sars’s ability to fully implement key modernisation and enforcement initiatives, slow down progress on critical digital infrastructure, analytics, and AI capability, and reduce frontline capacity needed for combating illicit economic activities.
“Ultimately, this will affect Sars’s capacity to improve administrative efficiency, reduce the tax gap, address tax and customs cross-border crime, and secure much-needed revenue to support the government’s fiscal and developmental objectives.”
In response to queries from Business Times this week, Sars said that unless “material funding gaps” are addressed, it does not have sufficient manpower or technical capability to fully achieve its goals on digital modernisation and the fight against illicit economic activities in the medium term.
“Skills are central to digital modernisation and modern enforcement models but cannot be attracted and retained at scale under current remuneration constraints, given fierce private‑sector competition for skills,” Sars said in an e-mail.
It said key capacity constraints included the attrition of scarce technical skills and inadequate capacity in enforcement and investigations.
The prohibition of legal tobacco and alcohol sales during lockdowns created supply vacuums that were quickly filled by organised crime
— Siphithi Sibeko
This hampered the tax agency’s ability to target high‑risk, illicit sectors such as tobacco, fuel, alcohol, cash‑based activities, e‑commerce and cross‑border trade. “This directly contributes to a widening tax and customs compliance gap, elevating fiscal risk and weakening delivery of macrofiscal objectives outlined in the medium-term budget policy statement.”
According to Sars’s data, bootleg tobacco is the fastest‑growing segment, with its market share having grown from 20%–25% in 2014 to about 60% by 2021 — after smoking was banned during the pandemic — and to 58%–75% by 2024–2025.
This costs the fiscus as much as R15bn in annual losses. The economic damage caused by the surge in illicit tobacco was crystallised by the decision earlier this year by British American Tobacco (BAT) to cease producing cigarettes in South Africa. BAT said the proliferation of blackmarket cigarettes in South Africa made local production unviable.
At the end of the year the tobacco giant will mothball its Heidelberg plant, once the eighth largest in BAT’s global network, which exports to several countries in the Southern Africa region. The plant is currently operating at just 35% of total capacity, making it unsustainable.
Sars also highlighted the problem of bootleg liquor, which was costing the fiscus about R11bn in lost earnings — the highest figure in seven African countries it studied. It said bootleg products were often about 30% cheaper than the legal alternative, with significant public‑health risks compounding the economic harm.
Other activities and products that were robbing the fiscus of billions of rand in potential revenue included the illegal blending of fuel, gold smuggling and a range of counterfeit goods such as clothing, textiles, pharmaceuticals and foodstuffs.
Sars spokesperson Siphithi Sibeko said the weakening of the tax agency during the height of state capture had contributed to the surge in illicit trade.
“Between 2014 and early 2025, the illicit economy expanded rapidly, outpacing legitimate economic growth and becoming deeply entrenched. Sars and independent analyses ... attribute this growth to institutional weakening during the state‑capture era (particularly 2014–2018), systemic border and customs corruption, cross‑border syndication, and the Covid lockdowns,” Sibeko said.
“The prohibition of legal tobacco and alcohol sales during lockdowns created supply vacuums that were quickly filled by organised crime. By early 2025, illicit activity was assessed to be consuming significant portions of the lawful economy, destroying jobs, fuelling broader criminality (including drugs and violence), and eroding social cohesion.”
Sibeko stressed that the agency was doing its best to fight the syndicates.
Sars last month executed search‑and‑seizure and preservation orders against six current and former officials, clearing agents, importers and related parties. Their scheme involved manipulation of physical inspections in exchange for bribes, with more than R45m in underdeclared income and about R18m in tax prejudice identified.
Together with the police, Sars conducted 23 operations across Gauteng, Mpumalanga and KwaZulu-Natal last year, in an operation that found nearly 1-million litres of contaminated diesel fuel. In some instances the fuel had up to 68% paraffin content.
“The illicit economy, once allowed to proliferate largely unchecked, is now subject to co-ordinated national disruption with visible consequences for syndicates and corrupt insiders. However, the challenge remains deeply entrenched. Resource constraints persist despite funding increases, and criminal networks continue to adapt,” Sibeko said.
In the foreword of the performance plan, finance minister Enoch Godongwana says the country, still recovering from the economic harm of the pandemic, is now navigating an uncertain future due to geopolitical tensions.
“We are also grappling with the scourge of illicit economic activities, with an estimated cost to the economy of R700bn, [or] 10% of GDP annually. Illicit trade alone costs the fiscus over R100bn each year,” the minister says.
“These figures are not abstract; they represent stolen futures, diverted resources, and broken public trust. We must therefore all unite around efforts to defeat this scourge. Addressing these challenges requires co-ordinated efforts across government agencies, including Sars.”
According to Euromonitor International data cited by Dr Shamal Ramesar, head of research at the Drinks Federation of South Africa, sales of bootleg alcohol in South Africa grew 55% in volume between 2017 and 2025.
“This study is a wake-up call,” he said. “Communities are being exposed to harmful, unregulated alcohol, and the country is losing billions in revenue. It is urgent that government, industry and civil society work together to tackle this issue head-on.”
He said illicit alcohol now accounts for 18% of all alcohol sold in the country, growing from R12.8bn in 2017 to R25.1bn in 2024.
Matthew Parks, parliamentary co-ordinator for Cosatu, urged the government to drastically ramp up efforts to tackle illicit goods and customs fraud. “Illicit goods, from tobacco and alcohol to clothing and tyres among others, pose a dire threat to local jobs, businesses, value chains and communities.”
Additional reporting by Kabelo Khumalo
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