While the government has said increases in alcohol duty would drive revenue to the illicit liquor trade, the National Treasury says it wants higher taxes primarily to curb excessive drinking, not to raise additional revenues.
“The proposal contained in the review paper is still undergoing consultations with stakeholders, and once it has been finalised, then the National Treasury will be able to provide revenue estimates,” it said. “However, it should be noted that the review process is primarily motivated by the need to reduce alcohol consumption and not by potential revenue that could be collected.”
The Treasury held virtual meetings with stakeholders in the alcohol industry in November to brief them and get their input on the proposed policy adjustments.
The proposed changes to alcohol excise duties could raise beer taxes by 20%. The Treasury said the November meeting was the first of planned engagements with the industry and the public, and further meetings would be held this year.
“That meeting focused on stakeholder comments and inputs as it relates specifically to the state of alcohol consumption and prevalence in the country in the context of the alcohol tax review discussion paper published for comment.”
The Treasury said taxpayers raised concerns about any proposal to increase taxes but provided important inputs.
The Treasury did not disclose the response from beer producers.
The Treasury is not the only government department that has moved to tighten the screws on alcohol consumption. The department of transport last week announced that it was considering a total ban on alcohol use before driving, moving to a zero-tolerance policy on drinking and driving.
Alcohol-related harm in South Africa is estimated to cost between 10% and 12% of GDP each year.
— Kashifa Ancer, campaign manager for Rethink Your Drink
The department of transport and the department of health failed to respond to questions from Business Times.
South Africa Wine, Diageo SA and SAB said they had engaged the Treasury on its proposal and expressed concern that above-inflation increases to taxes on alcohol could drive consumers to the illicit alcohol market.
“Alcohol-related harm in South Africa is estimated to amount to between 10% and 12% of GDP each year. Multiple studies have found a 60% reduction in femicides over the Covid-19 period [and subsequent alcohol ban]. [Alcohol contributes to] roughly half of all homicides, two-fifths of rapes and about a quarter of road fatalities linked to driver error, said Kashifa Ancer, campaign manager for Rethink Your Drink.
“Alcohol-related harm in South Africa is estimated to cost between 10% and 12% of GDP each year. Over the past decade, multiple studies have found alcohol to be a contributing factor in around 60% of femicides, roughly half of all homicides, two-fifths of rapes and about a quarter of road fatalities linked to driver error.
“These harms are not evenly distributed. Much of the excessive supply of cheap alcohol is concentrated in poorer communities, where alcohol-attributable death rates are more than four times higher than in wealthier areas.”
She said the industry has argued that excise increases should be limited to inflation and that enforcement should be the primary policy response, but that ignored the fact that enforcement could not substitute for pricing policy.
“Pricing shapes consumption at the population level in ways that enforcement alone cannot. Inflation-only increases effectively lock in an already weak response, particularly given that alcohol has become more affordable over time in real terms.”
Illicit alcohol is a real risk and must be addressed, but it is important to be clear that excise reform and stronger enforcement are not mutually exclusive. South Africa can and should pursue both at the same time.
— Kashifa Ancer
International guidance consistently identified price-based measures as among the most effective and cost-effective tools for reducing harmful consumption.
“Illicit alcohol is a real risk and must be addressed, but it is important to be clear that excise reform and stronger enforcement are not mutually exclusive. South Africa can and should pursue both at the same time.”
She said recent industry-commissioned research on illicit alcohol points primarily to weak enforcement, regulatory gaps and failures in controlling ethanol supply chains as the key drivers of illicit trade.
“The appropriate response is not to freeze pricing policy but to strengthen enforcement through measures such as a robust track-and-trace system from the point of production to the point of sale, similar to approaches used to tackle the illicit cigarette market.”
She said evidence suggests that the greatest threat to small producers is a market structured around extreme price competition, and large producers are better able to absorb tax increases, cross-subsidise products and compete through deep discounting and volume-based strategies.
“A reformed pricing framework — combining excise restructuring with minimum unit pricing — limits the ability to compete primarily on ultra-cheap alcohol, while allowing smaller producers to compete on quality and differentiation rather than a race to the bottom.”
She said a comprehensive overhaul of alcohol pricing is not about punishing consumers or producers, but aligning alcohol pricing with the scale of harm South Africa faces, reducing inequality in alcohol-related deaths, and lowering its long-term social and economic costs.
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