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Liquor may face moderate sin tax hike, says economist

Based on current policy, sin taxes would likely still increase, but not as sharply as previous fiscal cycles when Finance Minister Enoch Godongwana announces the Budget this week, says Tax Consulting South Africa head of Tax Technical, Jean du Toit. Picture: Oupa Mokoena/African News Agency/ANA

Based on current policy, sin taxes would likely still increase, but not as sharply as previous fiscal cycles when Finance Minister Enoch Godongwana announces the Budget this week, says Tax Consulting South Africa head of Tax Technical, Jean du Toit. Picture: Oupa Mokoena/African News Agency/ANA

Published Feb 22, 2022

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BASED on current policy, sin taxes would likely still increase, but not as sharply as previous fiscal cycles when Finance Minister Enoch Godongwana announces the Budget this week, says Tax Consulting South Africa head of Tax Technical, Jean du Toit.

Last week, the South African alcohol industry called on Godongwana to put forth measures to improve conditions in the sector during his 2022 Budget speech.

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Du Toit said that sin taxes or excise was a significant contributor to revenue and because it was imposed on inelastic products generally, it was an item where an increase in tax rates resulted in a proportional increase in revenue.

“With Covid it might have been the exception with the ban on tobacco and alcohol since the outbreak of the pandemic,” Du Toit said.

He said on account of the bans on alcohol in particular, there were calls for excise duties not to be increased or for a more moderate increase in these rates than in previous years.

The South African Liquor Brand-owners Association (Salba) said last week the increases in sin taxes had not affected how much South Africans drank, but merely shifted it to the illicit market.

The organisation’s chief executive, Kurt Moore, said increasing excise at rates above inflation would continue to provide a competitive advantage to illicit traders, at the cost of the legal market and society at large.

Moore said continued above-inflationary excise increases had contributed to a situation where legal alcohol prices now exceeded those of illicit alternatives by 43 percent on average, and illicit traders had seized the opportunity by stepping into the void and providing cash-strapped consumers with easy access to cheaper alternatives, while legal traders battled surging input costs (including excise) and crippling supply chain constraints.

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“The illicit trade has almost doubled its market share in less than a decade, by volume, and represents 22 percent of the South African alcohol market – making it the second largest ‘player’ in the local industry. Illicit trade doesn’t comply with regulations, it doesn’t pay tax. It takes without giving back. In contrast, the legal alcohol industry value chain in 2019 supported almost a million livelihoods, contributed R173 million at market prices to gross domestic product, including the payment of R72 billion to the fiscus in indirect taxes alone,” Moore said.

Salba said the legal alcohol industry enabled an estimated 100 000 licensed independent small, medium and micro enterprise alcohol traders to continue trading, earning a livelihood and providing much-needed jobs. Excessive taxation was just another form of red tape hindering economic growth, it said.

Excise rates had quadrupled since 2000 while World Bank data showed that over the same period, the total alcohol per capita consumption in South Africa had remained virtually unchanged, Salba said.

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Likewise, Vinpro managing director Rico Basson last week called on the government not to level any further cost hikes that would have an adverse effect on the industry.

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