National Treasury is proposing many measures to limit the hazardous use of alcohol in SA, in a process that could potentially see a change in how the lucrative sector will be taxed.
One of the proposals is setting a minimum price for alcoholic beverages.
According to the Treasury’s policy analysis document released on Wednesday, setting a minimum price prevents producers and retailers from absorbing some of the tax increases and reducing prices or offering large discounted prices on alcoholic products.
Treasury said it was in favour of minimum unit pricing in theory, based on the experiences of other countries that have implemented it, adding the government should think about how such a mechanism could be included in the package of interventions.
According to 2018 World Health Organisation (WHO) data, about 59% of South Africans aged 15 and older who drink alcohol engaged in excessive episodic drinking. Heavy episodic drinking (the estimated daily average consumption of 64.6g of pure alcohol) is a serious issue.
SA as a WHO member state has had an excise tax system in place since 2004.
While the weighted average retail prices of several types of alcoholic beverages have been below inflation in recent years, excise taxes on these beverages have been rising above inflation.
“Given the experiences of countries that have implemented it, National Treasury supports, in principle, the implementation of minimum unit pricing,” it said. “Therefore, government collectively should consider how such a mechanism, given our context and alcohol-related problems, could form part of the package of interventions.”
Increasing disparity
Establishing a minimum price per unit of alcohol — which is not a tax instrument but a pricing mechanism that sets the price floor below which no unit of alcohol should be sold — was suggested as a way to lower the use of cheap alcohol and the harm caused by it.
The Treasury study acknowledged this had resulted in the excise incidence being higher than the recommended proportion, increasing the disparity in excise taxes between these types of alcohol, particularly for spirits.
“Therefore, an option for consideration is to either increase the guideline tax burden for all the alcohol categories or to do away with it completely,” the Treasury document reads.
Excise taxes are levied to discourage the consumption of certain types of products and drive up national revenue. The tax is paid by businesses but the cost is passed on to consumers.
For wine, beer, and spirits, the current guidelines provide that the tax incidence is 11%, 23%, and 36%, respectively and for each alcohol category — higher than the policy guidelines allow.
Considering that SA’s inflation rate has been below 10% since 1993, except for 2008 when it was about 10.06%, the government suggested that a policy framework be established whereby changes to the excise duty rate are made within the range of the anticipated inflation, at the very least, and up to 10%.
Australia and Kenya are among countries that have passed legislation allowing for an inflation-based excise duty adjustment. Kenya also allows for an adjustment on excisable commodities of no more than 10%.
Deficient recognition
The proposals come as the alcohol industry, which contributes nearly R100bn in tax to the state, has bemoaned the inequity of the excise tax framework as unstable and erratic, making things unnecessarily complicated and unclear for legitimate and compliant businesses.
The Beer Association of SA (Basa) said it had over the years appealed to the government to redress the disparities between the excise policy framework and its deficient recognition of small, medium-sized and microenterprises (SMMEs).
The body said investment and innovation in lower- and no-alcohol options had created an unprecedented opportunity for the sector to align with public health objectives.
“The excise policy framework has been a major source of frustration and controversy for the beer industry and contributed to the undue burden on the industry and consumers,” said Basa CEO Charlene Louw. “We applaud the government for recognising the views of the industry … there is still more work to be done to reform the alcohol excise regime in SA.”
Noting the release of the discussion paper, SAB said that the 10-year policy was outdated and has been in dire need of a review.
“We are reviewing the paper and will continue with engagements with government partners to ensure that the excise system is fair, balanced and based on empirical evidence,” said corporate affairs vice-president at SAB Zoleka Lisa. “Our objective in these engagements remains to see the tax framework become fair, equitable and predictable.”
After the public consultation process, the draft plans will be updated to take into account feedback from the public, and the 2025 budget will include related announcements.
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