Treasury’s proposed increases in the excise duties on cigarettes, beer and vaping products met with stiff opposition in parliament last week.
The proposed increases in the Tax Laws Amendment Bill, which is being processed by parliament’s finance committee are 5.5% for beer and cigarettes and R2.90/ml for nicotine and non-nicotine solutions used for vaping.
The protests against increases in excise duties announced in the February budget are almost an annual event being repeated during public hearings by the committee on the tax bills last week.
The Beer Association of SA’s (Basa’s) Patricia Pillay said the association, which represents the entire value chain of the beer industry, is disappointed by the 5.5% increase in the beer excise duty when that for wine is 4.5% and when beer has a much lower alcohol level by volume than wine. It is, however, satisfied that the increase in the beer excise duty is nearly in line with the inflation rate.
“In a society where we are trying to deal with social ills we could not understand the rationale why a category with the lowest alcohol by volume was taxed higher,” Pillay said.
Craft brewers are in the first year of a three-year recovery path after the devastating impact of the Covid-19 lockdowns, Pillay said, with 60% still on the brink of closure and 30% having already closed their doors.
“We want some certainty in terms of our excise adjustment in terms of a fixed in line with inflation [adjustment] for the medium term so that at least for three years we can plan,” Pillay said.
SA Breweries (SAB) economist and excise specialist Fatsani Banda said that the volatility in the approach to the annual excise adjustment has created uncertainty for its business, affecting planning and investments. “There has been large variability in the way the annual excise adjustment has been implemented.”
Fair competition
SAB also recommended that an alcohol by-volume or an alcohol content-based system be applied across all types of alcohol instead of this only applying to beer and spirits as now. Such a system would reduce the red tape and administrative cost for the SA Revenue Service (Sars) and producers. Banda also recommended an approach to excise adjustments on the basis of a fixed excise rate in line with forecast inflation for three years in the medium-term budget policy statement. This would provide certainty and reduce volatility.
British American Tobacco SA representative Dane Mouyis stressed the need for the excise duty on vaping liquids to be imposed on all players in the vaping market equally to ensure fair competition and an equal playing field. He noted that many retailers and manufacturers are creating their own vaping liquids, the “do it yourself” industry, which converts imported nicotine liquid into larger volumes.
All vaping products should be excisable, and a robust excise framework should be put in place that involves registration and licensing to enable Sars to capture all participants in the industry. A track-and-trace system is also necessary. Mouyis said research shows that a rate of R1.45/ml should be the upper limit in SA’s case and that 70c/ml would be more appropriate.
Vapour Products Association of SA’s Asanda Gcoyi referred to several studies showing that nicotine and non-nicotine delivery systems such as vaping are a less harmful alternative to combustible tobacco and therefore the justification for the Treasury’s excise duty on vaping products on the basis that they could potentially undermine the global tobacco control effort “could not be further from the truth”.
An excise duty would make vaping products more expensive, going against the doctrine of harm reduction and would have a “destructive” economic impact on the vaping industry, Gcoyi said. She called for a socioeconomic assessment of the effect of the excise duty on the industry and for the SA Bureau of Standards to devise standards for testing the nicotine of products being declared. The introduction of the excise duty should be deferred or alternatively significantly reduced, Gcoyi said.
SA Tobacco Transformation Alliance CEO Tobela Tapula said in a written submission that the 5.5% hike in the excise duty on cigarettes would contribute to the trend where cigarettes on which the duty is paid are becoming less affordable to consumers, who continue to move to cheaper cigarettes on which no duty is paid. He called for a change in the methodology for determining the excise duty.
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