Increase of excise tax troubles South Africa’s alcohol industry

SOUTH AFRICA – The dreaded announcement by South Africa’s alcohol industry finally befell the sector when the Finance Minister Tito Mboweni announced an increase of 8% on excise rate, which will exceed the targeted excise duties for wine, beer and spirits set by Treasury itself, at 11%, 23% and 36% respectively.

The Beer Association of South Africa (Basa) – comprising the Craft Brewers Association, Heineken South Africa and South African Breweries – calls the announcement by the finance minister, “a kick in the teeth for everybody in the beer value chain, and especially small craft brewers whose businesses have been shattered by 19 weeks of restricted trade.”

“Minister Mboweni’s announcement to increase excise taxes by 8% for the forthcoming financial year will be truly detrimental to our efforts to save jobs and livelihoods within the beer industry.

“This outrageous increase, set at 3.8% above inflation, will destroy the few businesses left standing. It is absolutely abhorrent that a government can choose to shut down an entire industry, repeatedly, with no prior communication to businesses within the sector and with no relief measures in place to soften the blow to jobs and livelihoods,” it added.

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Rico Basson, Managing Director of Vinpro which represents 3 500 South African wine producers, said that they were “extremely disappointed that the government has, once again, not heeded the call of our industry.”

The lobby organization has highlighted that the excise duty increase may not affect consumers but are passed on to wine grape producers and for an average bottle of wine sold at R45 (US$3.01), government earns R10.04 (US$0.67) from excise duty and VAT, while wine grape producers ear a net meagre farming income of 77c per bottle.

“It is yet another surprise announcement with no warning and consultation on a matter of significant strategic importance to our industry.”

South African Breweries

Over the past few weeks, the industry which pays an average of R2.5 billion (US$133.6m) per month in excise tax and contributes R172 billion (US$11.49 billion) or 3% of GDP to the South African economy – has been pleading with government to halt the annual increase this year, as the industry is currently trying to recover from the impact of COVID-19 related bans on alcohol sales.

The three alcohol bans are said to have led to a loss of more than 200 000 jobs (1.2% of national employment), R36.3 billion (US$2.42 billion) in lost revenue and a loss to GDP of more than R51.9 billion (US$3.4 billion) – 1.0% of the total GDP measured at market prices.

The South African Breweries (SAB), the country’s largest brewer has also lent its voice to the matter indicating that it is in contrary to SAB’s submissions and expectations and in direct contradiction with National Treasury’s own policy.

“It is yet another surprise announcement with no warning and consultation on a matter of significant strategic importance to our industry.

“The Minister’s decision to implement an increase of this magnitude, cannot be reconciled to the dire need to sustain local jobs, reignite economic growth and attract much needed investments,” indicated SAB.

SAB’s greatest concern is the fact that this excessive excise increase will, in the current economic and social climate, be a much less effective measure to reduce harm than has been postulated.

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The maker of Castle Lager beer has indicated that the move will fuel the consumption of illicit substitutes, which have become prevalent and more available as a result of the recent ongoing alcohol bans.

The decision will aid the growth of illegal trade at the cost of legal, compliant businesses in the industry and will result in losses in revenue to the fiscus.

SAB has stated that it will continue to call for greater consultation and more transparent engagement on all policy and regulatory matters.

“It is not sustainable for government to continue excluding the private sector from the conversation when decisions of this magnitude and impact are taken. Solutions that are effective and sustainable are best achieved together.

“SAB remains committed to the country and the communities within which we operate. We call on our value chain partners to continue to support the request for more inclusive and sustainable outcomes for our industry, country and economy,” SAB indicated.

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