Liquor producers have come out against the National Treasury’s plan to link excise tax hikes to headline inflation in overhauling the sector’s taxation, pitting the industry against health activists in SA’s biggest excise tax reform in more than two decades.
Late last year, the Treasury proposed overhauling the liquor excise tax structure, saying the use of the weighted average retail price to adjust sin taxes is out of date, and proposing instead a levy rate of between the inflation rate and 10%.
Public comments on the proposal, which came alongside a draft policy document proposing introducing minimum unit pricing for alcoholic beverages that set a legally binding baseline price per unit of alcohol, closed on Friday.
In its submission to the Treasury on the draft minimum unit pricing, the Beer Association of SA (Basa), which represents global drinks giants such as AB InBev’s SA operations, and Heineken, advocated an approach that protects the industry and jobs, and encourages responsible drinking.
“A well-designed system must balance the economic realities of our industry with the country’s socioeconomic objectives, ensuring a sustainable and equitable approach for all stakeholders,” Basa CEO Charlene Louw said. “Proposals for inflation-linked increases with a 10% cap or 4% above inflation margin are excessive and could lead to diminishing fiscal returns and industry instability.”
Instead, Basa called for an adjustment aligned with CPI, reduced excise rates for lower alcohol-content beers and exemptions for microbrewers to encourage job creation. “Overburdening the industry with excessive excise hikes will worsen economic challenges,” Basa said.
It is proposed that the Treasury slaps a 40% increase on wines with an alcohol strength of 5.5%-9%, and double that for wines with 9% alcohol by volume (abv). For beer, the present rate of R2.31 per 340ml will stay for beers below 2.5% abv, but a 20% hike is proposed for beers of up to 9% abv. Spirits, taxed now at R88.50 for a 750m bottle at 34% abv, will see no further adjustments, drawing a positive reaction from spirits companies.
“We have called for a freeze in further increases for spirits to allow for the divergence rates for different categories to be reduced over time,” said Sibani Mngadi, corporate relations director at Diageo SA operations, referring to the difference in tax rates between categories.
The debate on liquor pricing and taxes comes as finance minister Enoch Godongwana prepares to deliver the budget speech on Wednesday when he is expected to balance spending pressures with the need to pay down public debt.
The Treasury collects more than R40bn a year in alcohol excise tax, less than 3% of the total tax revenue, money meant to shoulder the burden of harmful use of alcohol, or binge drinking. About 60% of SA consumers aged 15 and older engage in heavy episodic drinking.
If passed, the changes would be the biggest since 2004, when SA adopted a framework based on the total consumption tax burden as a percentage of the weighted average selling price for beer, wine and spirits.
Supporters, including DG Murray Trust and researchers at the UCT School of Economics, hailed the reforms as a public health victory, writing to the Treasury in its submission to push through minimum unit pricing and slap alcoholic beverages with taxes based on alcoholic content.
“The current taxation system does not adequately address the full societal costs of alcohol misuse, leaving the country with one of the highest alcohol burdens in the world. Reducing this burden will have beneficial ripples throughout communities, education, health and social services and ultimately the economy,” said David Harrison, CEO of DG Murray Trust, in the nonprofit’s submission. The trust was set up in 1995 to promote social justice, human rights and sustainable development.
Citing studies in Scotland and Wales, where minimum unit pricing is heralded as a public health victory, DG Murray’s proposal rests on the theory that if liquor is made it less affordable, consumption will plummet and save millions of lives.
“By setting a minimum price per unit of alcohol, [minimum unit pricing] prevents the sale of extremely cheap, high-strength liquor, which is disproportionately consumed by binge drinkers and low-income communities,” Harrison said.
“The price should be adjusted annually for inflation to prevent alcohol from becoming more affordable over time.”
Critics of the policy proposal say it is inherently regressive, hitting the poor most, potentially driving them to the illicit alcohol market, turbocharged five years ago by the pandemic-induced bans on alcohol sales. "[Minimum unit pricing] is inappropriate for SA, given existing affordability challenges,” Basa said.
“Instead, Basa recommends conducting a socioeconomic impact assessment before any policy implementation.”
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