South Africa liquor industry wants break from excise tax until current ban is lifted

SOUTH AFRICA – The extension of the alcohol ban in South Africa is causing increasing distress to the country’s multi-billion-rand liquor industry, which wants another deferment of excise tax duty on alcohol to mitigate the impact on the sector.

Major industry bodies, including the South African Liquor Brandowners Association (Salba), Beer Association of SA (Basa) and wine organisation Vinpro, have warned of further job losses, the collapse of smaller players and billions of rands in lost tax revenue for government.

“President Cyril Ramaphosa’s decision to extend the alcohol ban has left the South African alcohol industry with no choice but to apply for a deferment of the payment of excise duties until the ban is lifted,” Salba and Vinpro said in a joint statement.

The alcohol industry pays SA Revenue Service [Sars] an average of R2.5 billion (US$165m) per month in excise tax contributions for locally-produced and imported products.

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The Mid-term Budget Statement from Treasury in October estimated a 28% reduction in excise tax contribution from R47 billion (US$3.1 billion) in 2019 to R34 billion (US$2.2 billion) in the current financial year ending February 2021.

“We can expect those losses to deteriorate with every day and week that the current ban is maintained,” the industry associations pointed out.

With alcohol excise tax imposed at the point of production, it means that alcohol companies have a liability to pay the excise tax on end products in their warehouses, which cannot be sold due to the current indefinite prohibition of sales.

“President Cyril Ramaphosa’s decision to extend the alcohol ban has left the South African alcohol industry with no choice but to apply for a deferment of the payment of excise duties until the ban is lifted.”

South Africa alcohol industry players

The latest request is not the first from the industry which applied for a deferment during the country’s second alcohol ban in March last year.

The deferment was for July and August, amounting to at least R5 billion (US$330 million), which they paid in October when sales were briefly back in operation.

Commenting on the tax deferment request, Salba CEO Kurt Moore said, “The government did not indicate when alcohol sales will be allowed again. It is prudent that the industry applies all possible cost-preservation measures to keep it afloat: delaying excise tax payments is a significant factor.

“The industry and its entire value chain face an enormous financial crisis, and its capacity to make these payments is severely constrained.”

Vinpro, which represents 2 500 South African wine producers, cellars and industry stakeholders, said it estimated that in the 17 weeks following the prohibition in March 2020, the wine sector lost more than R8 billion in direct sales revenue.

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Vinpro CEO Rico Basson said, “With less than a week before the 2021 harvest commences, the South African wine industry faces a grim picture of business closures, job losses, downward price pressure, structural damage to subsectors, a decline in production without investment, quality deteriorating, a loss to the fiscus and diversification away from wine.”

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