SOUTH AFRICA – In line with the proposal of the Beer Association of South Africa (Basa) to have the excise adjustment approach changed to one that reflects the (forecasted) inflation, the South African government has suggested increasing excise duties on alcohol in line with expected inflation of 4.9% for 2023/24.
Basa, initially, had also wanted the application of an ABV Excise Duty System within all Excisable Alcohol Products, which means products with a lower ABV are taxed proportionally lower than products with a higher ABV.
However, in the 2023 Budget Review, the National Treasury announced guideline excise tax burdens for wine, beer, and spirits to be at 11%, 23%, and 36%, respectively, of the weighted average retail price.
In addition, the rate for sparkling wine is realigned to the policy decision taken in 2016 to peg it at 3.2 times that of natural unfortified wine.
In a statement, Finance Minister Enoch Godongwana said: “Excise duties have increased more than inflation in recent years, resulting in a higher tax incidence.”
He explained that due to the difficult operating environment for the sugar industry from the impact of flooding and social unrest, the health promotion levy will remain unchanged for the following two fiscal years to enable the industry to diversify or restructure.
If the proposal is adopted, a 340-milliliter can of beer price increases by 10 cents; a 750-milliliter bottle of wine goes up by 18 cents; 750-milliliter bottles of spirits will increase by R3.90;
In the same budget, the government has cushioned the manufacturing sector, especially the beer and agriculture sectors, by temporarily expanding the renewable energy tax incentive to encourage rapid private investment to alleviate the energy crisis.
When giving out its proposals, Basa noted that with the loadshedding above stage 3, the beer makers cannot undertake the process of brewing very efficiently because brewing needs at least nine hours of uninterrupted electricity supply.
The association also highlighted that power outages have also led to spikes in secondary costs, which include the delivery costs of raw materials to produce beer, as well as the packaging and delivery of beer to customers.
The current incentive allows businesses to deduct the costs of qualifying investments over a one- or three-year period, which creates a cash flow benefit in the early years of a project.
“There will be no thresholds on the size of the projects that qualify, and the incentive will be available for two years to stimulate investment in the short term,” Godongwana said.
“Investors in PV projects below 1 MW can deduct 100% of the cost in the first year. Under the expanded incentive, businesses will be able to claim a 125% deduction in the first year for all renewable energy projects with no thresholds on generation capacity.”
The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025.