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South African Breweries (SAB) says repeated above-inflation excise tax increases are creating fertile ground for illegal alcohol traders, costing the fiscus billions of rand and threatening the sustainability of the formal industry.
CEO Richard Rivett-Carnac said on Thursday the company, owned by JSE-listed global brewing giant AB InBev, accepts that alcohol taxes are intended to address harm. However, the present trajectory of excise increases is having unintended consequences, he added.
“We appreciate that alcohol does cause harm and that excise taxes are in place as a result of that. We’re a responsible taxpayer, and we expect to pay excise tax,” Rivett-Carnac said.
“Our view, however, is that the excise tax burden is already significant and should increase in line with inflation. Historically, increases have been about two percentage points above inflation every year. That has a compound effect.”
SAB says the widening price gap between legal and illegal alcohol is creating a strong incentive for consumers to shift to illicit products. Rivett-Carnac said those can sell at roughly half the price of formal products because illegal operators don’t pay excise duty or VAT.
Industry research backs up the scale of the problem. Market research firm Euromonitor estimates that the illicit alcohol market surged 55% in volume between 2017 and 2024, reaching a value of R25.1bn. Its study estimates the government lost R16.5bn in tax revenue last year alone. According to SAB, illicit alcohol robbed it of just more than R25bn in revenue.
One in five
Almost one in five alcoholic drinks sold in South Africa is from illegal sources, according to Euromonitor.
Rivett-Carnac, who also chairs the Drinks Federation of South Africa (DF-SA), describes illicit alcohol as “a growing threat to South Africa’s economy and public health”.
“It drains billions from public funds, threatens jobs and weakens the formal, legal, taxed alcohol industry,” he said.
The issue was the focus of a DF-SA panel discussion attended by representatives from the National Consumer Commission, Euromonitor and legal firm Adams & Adams late last year.
DF-SA’s head of research, Shamal Ramesar, said testing conducted with the University of KwaZulu-Natal found dangerous substances, including methanol, in illicit alcohol products. Ramesar said communities were at risk and the economy was the “biggest loser”.
“Unless we shut down illegal producers and educate consumers, lives will continue to be at risk,” he said.
Price gap widens
During the panel discussion Rivett-Carnac warned that economic pressures are amplifying the problem. In a tough macroeconomic environment, consumers are seeking cheaper options. The price gap between illicit and legal alcohol ranges from 37%-70%, making illegal products particularly attractive in low-income communities.
According to the Euromonitor survey, 67% of consumers said they would knowingly buy illicit alcohol because it is cheaper.
The alcohol industry has also pointed to the cigarette sector as a cautionary tale. The illicit cigarette market is estimated to account for 60%-75% of total sales in South Africa.
British American Tobacco South Africa recently announced it will shut down its Heidelberg manufacturing plant by the end of the year after years of declining volumes linked to illicit trade, a move that threatens hundreds of direct jobs and thousands more along the supply chain.
Rivett-Carnac said the alcohol industry does not want to see a similar outcome.
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