SOUTH AFRICA – South African Breweries (SAB) has called upon the government to establish clarity around excise tax increases, highlighting that excessive annual hikes exceeding inflation rates are jeopardizing the beer industry’s prosperity.
According to CEO Richard Rivett-Carnac, the current challenges faced by the beer industry in South Africa are due to due to high-interest rates, inflation rates, fuel costs, and unemployment acknowledged the strain on consumers
“These pressures have led to a significant decline in alcohol consumption, with volumes plummeting by approximately 5%,” he said.
Given the industry’s struggling state and the economic hardship faced by consumers, Rivett-Carnac stressed that deviating from established taxation policies, particularly implementing inflationary excise increases, would be detrimental.
Additionally, economist Linette Ellis of the Bureau of Economic Research (BER) revealed a 6% drop in consumer spending in 2020 due to job losses from the COVID-19 pandemic while presenting the latest beer economy elasticities report.
“While initial relief measures helped, inflation and interest rate hikes have eroded consumer spending power over the past 18 months,” he noted.
However, Ellis offered a glimmer of hope, projecting improved conditions in the coming years.
“Real disposable income growth is expected to recover, thanks to lower inflation, increased social grant spending, interest rate reductions, and the implementation of a two-pot retirement system.”
Additionally, the 2023 update to the econometric analysis of liquor price and income elasticity conducted by BER for SAB revealed that a 1% increase in real disposable income would typically lead to a 1% rise in liquor sales volumes.
However, the price elasticity of beer increased over the years, meaning that even a slight increase in beer prices above the Consumer Price Index (CPI) could result in a decline in sales volumes.
Rivett-Carnac underscored the importance of the beer industry in South Africa’s economy, noting that it contributes significantly to the country’s GDP and job market.
He stated that one in every R79 of GDP comes from beer, supporting one in every 66 jobs, totalling 250,000 jobs in South Africa’s beer value chain.
While acknowledging the importance of contributing to the nation’s tax revenue, Rivett-Carnac urged for policy certainty to navigate the challenging economic landscape.
He cited SAB’s substantial investments in South Africa, driven by a stable policy environment resulting from previous inflationary excise tax increases.
Rivett-Carnac emphasized that SAB’s position does not seek the elimination of excise taxes but rather advocates for clear and predictable policies.
He highlighted the operational disruptions caused by abrupt tax changes, which require recalibrations and temporary halts in brewery operations.
Rivett-Carnac appealed to the Treasury for a three-year tax certainty plan aligned with expected inflation rates, a step that could safeguard the beer industry’s growth and continue its vital role in supporting South Africa’s economy.