Excise announcement receives lukewarm reception, as it may not be what is needed to enable alcohol industry to live up to its full potential to contribute to economic growth

Media Release

  • Excise rates on balance increased above inflation. 
  • Illicit market remains a major policy concern, not merely an enforcement problem. 

The South African Liquor Brandowners Association (SALBA) noted that Honourable Finance Minister Enoch Godongwana had increased excise taxes on alcohol by between 4.5% and 6.5%.  On balance, this represents an increase above inflation and therefore still beyond National Treasury’s alcohol excise policy.

SALBA Chairperson Pamela Nkuna said, “SALBA made submissions to Treasury and SARS, proposing a moderate excise tax adjustment that was not higher than inflation, and whilst we are not completely satisfied with the outcome, we welcome the minister’s decision in that it indicates that our pleas have not gone completely unheard.”

Nkuna went on to say that the sector was committed to playing a significant role in the nation’s economic recovery. “We recognise that the government’s economic recovery plan places an enormous burden on the nation’s fiscus. As the President said in the State of the Nation address, ‘a new consensus’ was required, one in which the state creates an environment that enables and encourages the private sector to invest and drive the economy.”

The industry enables an estimated 100 000 licensed independent SMME alcohol traders to continue trading, earning a livelihood and providing much-needed jobs.

“The alcohol industry is a significant contributor to the fiscus through the number of people it employs who pay tax to the proceeds paid to the government from excise taxes,” she added.

“We believe that private business ‒ from corporate through to small to medium enterprises (SMEs) ‒ has a vital role to play in alleviating poverty through job creation and encouraging business expansion. The Minister’s announcement on excise, on balance increasing rates above inflation, will unfortunately not allow these businesses to contribute at their full potential”.

SALBA CEO Kurt Moore said that the decision to increase excise on spirits by two percent above inflation comes as a surprise considering the already high excise incidence that spirits carries and the fact that illicit trade is most prevalent in the spirits category.  This decision therefore creates more room for illicit traders, who pay little or no excise, to profit at the cost of the legal sector.

“The decision by the Minister to increase excise tax above inflation on balance, will continue to provide a competitive advantage to illicit traders at the cost of the legal market and society at large,” he said. “Above-inflationary excise increases contributed to the situation where legal alcohol prices now exceeded those of illicit alternatives by 43% on average.”

Illicit traders seized the opportunity to provide cash-strapped consumers with easy access to cheaper alternatives, almost doubling their market share in less than a decade. By volume, it currently represents 22% of the South African alcohol market, making it a formidable force and one that cannot be ignored or encouraged.

The legal alcohol industry value chain in 2019 supported almost a million livelihoods, contributed R173 billion at market prices to GDP, including the payment of R72 billion to the fiscus in indirect taxes alone.

Nkuna said, “The industry acknowledges the Minister’s balanced approach in arriving at this decision today and as such the industry remains committed to playing a significant role in the nation’s economic recovery.”

 

Issued by FTI Consulting on behalf of the South African Liquor Brandowners Association (SALBA).

salba@fticonsulting.com