Vape King and South Africa’s Vaping Industry: Battling CBCU Delays and Unjust Taxation

The vaping industry in South Africa has seen tremendous growth over the last decade, offering smokers a less harmful alternative while creating new business opportunities. Companies have invested in infrastructure, local manufacturing, and importing quality products to meet demand, while ensuring full compliance with the country’s regulations. Despite this, the Customs Border Control Unit (CBCU) has become an increasingly hostile obstacle for legitimate vape businesses, blocking shipments and applying incorrect taxes, to the detriment of the entire industry.

CBCU’s Systematic Stopping of Vape Shipments

The CBCU has adopted a blanket approach that targets virtually every shipment of vape-related products entering South Africa. Even companies that are fully compliant with both tax regulations and product safety standards face delays. These unnecessary stops are crippling businesses, driving up costs and leading to significant operational challenges. Vape companies have followed the rules set out by the government, ensuring they pay the required excise taxes on finished vaping products, but CBCU continues to hold compliant shipments without cause.

Vape King’s Struggle: A Case Study

For Vape King, a leading player in the South African vaping market, the situation has become especially dire. The company currently has two shipments stuck in customs for over a month, with no clear justification. One of these shipments contains flavour concentrates intended for the manufacture of vape juice, not completed products that are subject to excise taxes. Despite this, the CBCU has applied an excise tax of R3.04 per ml, which is meant exclusively for finished vape products, such as e-liquids and disposable vapes.

To make matters worse, CBCU has attempted to charge R1.9 million in taxes for a shipment whose total invoice value is only $27,000 (approximately R513,000). The shipment in question contains flavour concentrates, which are raw materials, yet the tax being imposed is as if these are completed vape products ready for retail sale. Not only is this classification incorrect, but the tax amount itself is far more than the value of the entire shipment, which doesn’t make any sense. The idea that a shipment worth half a million rand can be taxed almost four times its value is absurd and highlights the severe mismanagement happening at the border.

This misclassification and excessive tax burden have placed a significant financial strain on Vape King, causing delays in production and harming our ability to serve our customers. Such actions make it difficult for legitimate businesses to operate within the confines of the law, especially when we are being charged in a manner that defies both logic and fairness.

Proposed Tariff Code: A Bureaucratic Limbo

When Vape King raised this issue with SARS and the CBCU, we were informed that there is a plan to introduce a new tariff code specifically for flavour concentrates used in vaping products. However, this new code has yet to be implemented. In the meantime, CBCU is holding shipments based on future regulations that do not yet exist. This approach is not only unjust but also sets a dangerous precedent for the future handling of all vape-related imports. Businesses cannot be expected to comply with rules that are not yet in effect, and holding shipments under the guise of future plans is grossly unfair.

A Second Shipment Stuck Without Justification

In addition to the misclassification of flavour concentrates, Vape King has a second shipment that has been stuck in customs for over a month, and we have yet to receive any explanation from the CBCU for the stop. This shipment contains disposable vapes, and all taxes—specifically the R3.04 per ml excise tax—have been correctly declared and paid. There has been no under-declaration of any items in the shipment, and every regulation has been fully complied with.

Despite this, the shipment remains blocked, with no justifiable reason provided by the CBCU. The ongoing delay has severely impacted our business, increasing storage fees and causing unnecessary disruption in our supply chain. For a fully compliant shipment to be held without explanation, and in the absence of any violations, is an unacceptable practice that points to broader inefficiencies in how the vaping industry is being regulated.

Unfair Storage Fees Punish Legitimate Businesses

A significant consequence of these delays is the accumulation of storage fees while shipments are held in customs. These fees are substantial, amounting to thousands of rands per day, even though businesses like Vape King have done nothing wrong. Legitimate businesses are being penalized financially while waiting for CBCU to process goods that should be released. Storage fees should only be applied if there is clear evidence of non-compliance, not when delays are caused by inefficiency or mismanagement.

A Broader Issue: Industry-Wide Delays Affecting All Players

While the two shipments I’ve highlighted are particularly frustrating examples, these are far from isolated incidents. Over the past six months, every single shipment that Vape King has imported has faced similar delays and unjust stops by the CBCU. This pattern is not unique to our company; other vape industry players in South Africa have also reported facing the same challenges with each shipment.

Despite full compliance with import regulations, payment of required excise taxes, and transparent declarations, shipments continue to be delayed without explanation. The CBCU’s approach seems to be disproportionately targeting the vaping industry, creating uncertainty and unpredictability for businesses trying to operate within the bounds of the law. These delays are severely affecting the entire industry’s ability to provide products to consumers, threatening both the local supply chain and the future viability of the sector.

The Impact on South Africa’s Vaping Industry

The CBCU’s actions go beyond Vape King and affect the broader vaping industry in South Africa. Vape companies have long been tax-compliant and have ensured that their products meet all safety regulations. These actions, however, hinder the growth of the industry, disrupt local manufacturing efforts, and could lead to increased prices for consumers. When shipments of raw materials are delayed, it impacts the ability of manufacturers to produce e-liquids locally, reducing the potential for job creation and business expansion in South Africa.

Moreover, the vaping industry offers a less harmful alternative to smoking. By creating unnecessary roadblocks, the CBCU is pushing consumers back toward traditional tobacco products, which are far more harmful to public health. Instead of punishing compliant businesses, authorities should be working with the industry to foster growth and provide safer alternatives to smoking.

The Broader Economic Impact: Job Creation at Risk

The delays caused by the CBCU are not just disrupting supply chains and increasing costs; they are also threatening job creation in South Africa's vaping industry. Vape King alone employs over 70 people, and many other industry players have similarly sized teams. As these delays continue to block shipments and restrict the flow of goods, businesses are struggling to maintain operations, leading to concerns about potential job losses.

The vaping industry has the potential to contribute significantly to the South African economy by creating jobs and fostering local manufacturing. However, if these unjust delays persist, it will not only stifle growth but also force companies to reduce their workforce in order to survive. The ripple effect of these customs inefficiencies could see many people in the industry losing their livelihoods, further underscoring the urgent need for reform and fair regulation in how the CBCU handles vaping products.

Time For Change

The vaping industry in South Africa has always worked within the framework of the law, ensuring product safety and tax compliance. What we need now is a commitment from CBCU and SARS to act fairly. Misclassifications of goods must stop, and businesses that are fully compliant should not face unnecessary financial burdens in the form of storage fees or inflated tax charges.

Furthermore, the government must expedite the introduction of the proposed new tariff code for flavour concentrates. It is unjust to penalize businesses based on future regulations that have not yet been implemented. Fair regulation, transparency, and efficient customs processes will allow the vaping industry to thrive while protecting consumers and contributing positively to the South African economy.

It’s time for CBCU and SARS to end the unfair treatment of the vaping industry. As long as compliant businesses like Vape King and others continue to face unjust penalties, the entire sector will remain at risk, stifling innovation, reducing competition, causing job losses, stifling job creation and hurting consumers.

- Sharri Van Zyl | 04/10/2024