SA’s approach to beer taxation may be doing more harm than good to the economy and consumers, according to Keith Engel, CEO of the SA Institute of Taxation.
Engel has raised concerns about the high excise duty on beer, warning that this heavy tax burden on consumers and producers could backfire, potentially decreasing government revenue.
He criticised the regressive nature of the tax, which disproportionately affects middle- and lower-income consumers who often purchase beer as it is generally cheaper than wine or spirits.
The rising tax burden, he added, makes legal beer less affordable, possibly pushing some consumers towards illicit or homemade alcohol, which brings public health risks.
After accounting for taxes, production costs and retail margins, producers retain only 20% of total revenue from beer sales, Engel said.
With excise duties and VAT now comprising 38% of the revenue — a rate that has climbed faster than inflation — the industry is left with increasingly thin profit margins.
“Excise taxes on beer may become counterproductive at these rates,” Engel said.
“Given the government’s need to raise revenue to cover expenditure and debt in the fiscus while attempting to promote economic growth, it should proceed cautiously to maintain its current revenue share.
“Countries like Canada and Australia tend to moderate excise tax adjustments during periods of high inflation because, in general, the purchasing power of consumers tends to be constrained during these periods.”
The enactment of excise taxes is both irrational and unfair. Few areas are as perplexing and seemingly arbitrary as the nature of taxation of alcoholic beverages.
— Keith Engel, CEO of the SA Institute of Taxation
A recent report from Oxford Economics Africa, “Double the Pain: The Burden of Unpredictable Excise Taxes and High Inflation on Beer in SA”, supports Engel’s view. The report found that South Africans face some of the highest excise duties and taxes on beers globally.
In countries such as Australia, Canada, Tanzania and the UK, beer tax increases are generally modest and aligned with inflation, while SA’s high excise hikes have made beer more expensive.
The report says other countries have successfully reduced per capita beer consumption despite lower beer tax burdens, often adjusting taxes moderately in line with inflation.
In contrast, SA’s high excise taxes appear ineffective in reducing alcohol consumption, while placing pressure on industry and economy. The report suggests that excessive taxation alone may not curb beer consumption but could instead threaten economic stability and industry growth.
‘Byzantine’ structure
Engel criticised the inconsistencies in SA’s alcohol taxation structure, where beer faces a disproportionately high tax burden relative to its alcohol content. This, he said, results in a confusing, “Byzantine” structure that lacks a rational basis.
He suggested that the government adopt a similar model to other countries by keeping tax increases moderate and predictable.
“The enactment of excise taxes is both irrational and unfair. Few areas are as perplexing and seemingly arbitrary as the nature of taxation of alcoholic beverages.
“The current system fails to uniformly tax alcohol products based on their alcohol content, whereas beer seems to bear a disproportionate tax burden relative to its alcohol content.
“What producers have is then a Byzantine tax structure that seems more rooted in historical accident than sound policy,” he said.
Charlene Louw, CEO of the Beer Association of SA, has called for tax policies that balance government revenue goals with the economic realities facing the beer industry.
She said the excise duties on the liquor industry are squeezing both large and small brewers, creating unnecessary market entry barriers.
“Since 2019, excise decisions have been erratic and unpredictable, which has created an unnecessary level of complexity and uncertainty for legal and compliant businesses operating in an already unpredictable and tumultuous market,” she said.
Engel is calling for a more gradual, transparent approach to tax hikes on beer. Now, excise tax increases are announced abruptly during the finance minister’s budget speech, with changes taking effect overnight, he argued. This leaves producers and retailers little time to adjust pricing and system, the CEO said.
“A more measured, collaborative approach would better serve the interests of the economy, public health and SA society. Greater certainty around excise tax would significantly improve the efficiency of this system,” said Engel.
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