Alcohol, tobacco industries bemoan excise tax increase

25th February 2021 By: Tasneem Bulbulia - Creamer Media Reporter

The South African alcohol industry, including the National Liquor Traders Council (NLTC), South African Liquor Brandowners Association (Salba), Vinpro, the Consumer Goods Council of South Africa (CGCSA), retailers and manufacturers, have noted their concern about Finance Minister Tito Mboweni’s announcement in his Budget Speech 2021 that excise tax will be increased by 8%.

The industry says this is above targeted excise duties for wine, beer and spirits set by Treasury.

Salba has made submissions to the National Treasury and the South African Revenue Services (Sars), reflecting its assessment of the economic situation currently facing the industry owing to the bans on alcohol sales during the stricter lockdown periods.

It notes that Treasury forecast a 28% decline in tax revenue contribution from alcohol excise tax, with a three-year loss of R35-billion. This was owing to a volume drop ranging from 21% to 24% for wine, spirits and beer categories.

The industry says a lower-than-inflation adjustment for 2021 would have delivered a better and quicker recovery to pre-Covid-19 volume and tax contribution numbers – R46.8-billion in 2019 versus R33.7-billion projected in the Medium-Term Budget Policy Statement, excluding the effect of the third ban where there were five additional weeks without sales.

“We are extremely disappointed that government has once again not heeded the call of our industry. We have emphasised the plight of the South African wine industry in discussions with Treasury over the past few months and requested that excise duty be raised by no more than 50% of the consumer price index (CPI).

The above inflation excise tax increase follows on the back of a 16% wage and 15% electricity increase that will have to be absorbed at farm level,” says Vinpro MD Rico Basson.

Industry association the Beer Association of South Africa (Basa) has also expressed its “shock” at the increase of the excise tax on alcohol.

It says this increase, 3.8% above inflation, will cause strain to businesses, the industry and jobs.

The association has called on Trade, Industry and Competition Minister Ebrahim Patel to intervene.

The organisation also posits that an increase in excise taxes and its impact on livelihoods will be further compounded by surges in the illicit trade of alcohol.

“While Basa remains committed to working openly and transparently with government, we cannot continue to keep businesses alive as an industry association alone. National government needs to come to the table – and fast – if we are to prevent any further job losses and business closures within the sector,” it states.

Meanwhile, the South Africa Tobacco Transformation Alliance (Satta) says the 8% increase in the excise charge on tobacco products only benefits cigarette smugglers and the distributors of illicit tobacco products.

“While we fully understand government’s desire to increase tax revenue, we believe it is going about it the wrong way.

"An 8% excise tax increase equates to an increase of R1.39 in the price of a legally produced packet of cigarettes. It means nothing to those who manufacture and sell illegal cigarettes, apart from making their illicit products even more affordable. It will drive more and more people towards the illicit market – which means government will make even less money than it made before,” the organisation says.

Satta, which represents businesses across the entire legal cigarette production value chain, points out that it has consistently argued that excise charges should not be increased, to avoid the switching from legal to illegal products.

“We believe government should have tried to strike a balance when it comes to potential excise revenues from the sale of tobacco products, bearing in mind lessons learnt during Covid-19 lockdowns.

"All stakeholders have to reverse the undesirable consequences of illicit trade. The answer to this is to ensure that the legal market can recapture lost volumes and, in doing so, grow government excise revenues,” Satta says.