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The South Africa Liquor Brand Owners Association (Salba) has welcomed Finance Minister Enoch Godongwana’s amendment to the Customs and Excise Act and Value-Added Tax Act, banning the duty-free sale of alcohol and tobacco products to foreign diplomats, calling it a turning point in the enforcement of stricter measures on curbing the illicit trade of alcohol, and encouraging more decisive action of this nature.
Salba says the October 4 Constitutional Court ruling to amend the Acts will put an end to the illegal trading of duty-free products by diplomats. The South African Revenue Services (Sars) estimates that this illicit trade has resulted in a loss of revenue to the fiscus of more than R100-million a month.
The illicit trade of alcohol by volume currently represents 22% of the South African alcohol market, making it the second largest contributor to the local industry.
The illicit trade of alcohol poses significant threats as it does not comply with official regulatory standards and, more importantly, results in significant losses for the fiscus owing to tax noncompliance. South Africa’s market for illicit alcohol is historically large, with Sars estimated to be losing out on R11-billion in excise tax revenue a year owing to illicit liquor trade.
Salba confirmed the integral role the industry plays in terms of its contribution to employment and State revenue collection. Based on 2019 data, the legal liquor industry supported about one-million livelihoods and contributed R173-billion to the country’s gross domestic product, including the payment of R72-billion to the fiscus in indirect taxes.
“The Constitutional Court ruling is momentous. It signals a turning point in the State’s stance on curbing illicit activities in the areas of alcohol trade, and will serve to restore levels of trust and cooperation between the State and the industry.
“It also demonstrates the sixth administration’s commitment in implementing steps to improve the country’s ability to tackle illicit trade, signifying the government's ambition and resolve to root out this illegal activity,” Salba says.
The association states that decisive action, legislative support and cooperation are essential in ensuring that the illicit trade of liquor is adequately addressed.
It adds that the impact of Covid-19 prohibition measures had the unintended consequence of increasing the market share of illicit alcohol trade, which is set to continue to pose significant challenges for both industry and the State’s revenue collection framework.