Even in presenting the grimmest budget statements, successive ministers of finance have all found a moment of lightheartedness when they announced the increases in alcohol excise tax, or the “Sin Taxes”, as former minister Trevor Manuel popularised them.
Last year, finance minister Enoch Godongwana followed the same tradition despite presenting a humble GDP forecast of 0.6% for the country, while the global growth forecast averaged 3.1% in 2024.
“For alcohol products excise duties, above-inflation increases of between 6.7% and 7.2% for 2024/25 are proposed. This means a can of beer increases by 14c ... A bottle of wine will cost an extra 28c ... and a bottle of spirits, including whisky, gin or vodka, increases by R5.53,” Godongwana said to applause and laughter from across the house.
It would be a light bar moment if these above-inflation tax increases were not targeted at an industry that contributes R226.3bn (3.6%) to GDP and generates R482.7bn in economic output through its extensive value chain.
The alcohol industry generates R96.9bn in tax revenue which accounts for 6.7% of the government's total tax income and supports nearly 500,000 jobs with an impact on the livelihoods of 1.15-million people.
From what is known about the budget statement that was to be presented on February 19, the National Treasury had intended to once again impose an above-inflation excise tax increase of 6.83% on all alcohol categories for 2025/26. Like all other goods, alcohol will also be subject to an increase in VAT that is currently under discussion.
If he keeps to the known 6.83% increase, the minister is most likely going to say it is only an increase of R6 on a 750ml bottle of spirits. That sounds reasonable right? What he will not be telling the consumer is that the actual government tax on that single bottle of vodka or gin is being increased from R88.40 to R94.43.
Illegal producers and alcohol smugglers will be only ones celebrating the budget statement as an increased market growth opportunity as they can trade their non-duty paid products at R94 cheaper than a tax-compliant spirits product.
Above-inflation excise tax increases (plus VAT) will worsen the pervasive illicit alcohol trade, which already constitutes more than 20% of the total alcohol trade. The excise increases will deal a damaging blow to the industry, which supports hundreds of thousands of jobs and generates billions in revenue for the government.
In November 2024, the National Treasury published a review document entitled Taxation of Alcoholic Beverages. It acknowledged that spirits are disproportionately taxed compared with other alcohol categories.
National Treasury concluded that “no further increases are proposed for consideration for the spirits category”. In a deeply concerning move, National Treasury has gone against its recommendations and research, as shown by the increases muted in the aborted February budget statement.
Smuggling accounts for 68% of this illicit trade, including non-duty-paid imports, diverted exports and theft of duty-free stock. Euromonitor estimates that the government is losing R11.3bn in tax revenue annually due to illicit trade
The Treasury's budget review document meant to be tabled with the budget statement also identified illicit trade as a “serious challenge requiring greater and concerted attention to curb both its supply and demand”. According to a study by Euromonitor, the illicit alcohol market represents 21% of South Africa's total alcohol market by value.
Smuggling accounts for 68% of this illicit trade, including non-duty-paid imports, diverted exports and theft of duty-free stock. Euromonitor estimates that the government is losing R11.3bn in tax revenue annually due to illicit trade.
Rather than increasing taxes, the focus should be on strengthening Sars' capacity to combat tax evasion and recover the more than R11bn lost annually to illegal alcohol trade. “This approach would not only protect the legal alcohol industry but also boost government revenue without burdening consumers or encouraging illicit activity.”
Above-inflation increases in excise and the resultant increase in the illicit alcohol trade have disastrous consequences: livelihoods are negatively affected across the value chain; alcohol-related deaths increase due to illegal concoctions; the scope of illicit syndicates and other criminal activities are expanded; and the revenue generated from legal sales dwindle.
Last year's above-inflation excise tax increase of 6.7% also failed to deliver the expected revenue growth. Instead, Sars collected only 3.4% more in spirits tax revenue, as legal sales volumes declined.
Hopefully, the budget deliberations within the GNU will prioritise an excise regime that can expand the fiscus by promoting economic growth and job creation in the alcohol industry.
If the announcement of the “sin tax” increases is a moment of lightheartedness in the presentation of a difficult budget, at least the fuelling of the illegal alcohol trade and the web of criminality associated with its operations is something our lawmakers may need to think about. There is nothing lighthearted about that.
• Sibani Mngadi is the corporate relations director at Diageo South, West and Central Africa. He is also a member of the executive committee of the South African Liquor Brand-owners Association , a trade association representing spirits producers
For opinion and analysis consideration, e-mail Opinions@timeslive.co.za
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