Sin taxes: Finance Minister Malusi Gigaba announced a 6% increase to the excise duty on alcohol. Picture: BUSINESS DAY
Sin taxes: Finance Minister Malusi Gigaba announced a 6% increase to the excise duty on alcohol. Picture: BUSINESS DAY

With a widening debt gap, lacklustre economic growth projections and ailing state entities, the government is under pressure and will have to rely on tax to maintain the national budget.

Finance Minister Malusi Gigaba duly announced a hike in sin taxes in his first budget speech on Wednesday, which producers of "luxury goods" in the tobacco and alcohol sectors had been expecting.

There will be a 6% increase to the excise duty on alcohol and a 10% increase on the excise duty on tobacco.

The government is also expecting to draw R1.9bn in revenue from a sugar tax, which is coming into effect on April 1.

"In developing these tax proposals, government reviewed the potential contributions from the three major tax instruments, which raise over 80% of our revenue: personal and corporate income tax, as well as VAT," Gigaba said.

Cigars 4 Africa co-founder Marcus Tomlinson said the sin tax had arguably had the largest effect on the handmade, premium cigar trade.

"Someone who is willing to pay R200 on a premium cigar today is unlikely to buy the same calibre of cigar at R250 tomorrow," he said.

"The unfortunate result is that with each tax hike consumers are pressed to seek out cheaper and cheaper options; options that eventually may even pose higher health risks to them as they edge nearer the mass market cigarillo/cigarette industry, or perhaps, even worse, the counterfeit cigar market," Tomlinson said.

Speaking in his personal capacity, Axe Hill winery owner Mike Neebe said that as things stood the government made more money out of the wine industry than the industry did itself. "The reality is that sin tax is a convenient government revenue stream that increases annually … and adds to an already overloaded bureaucratic burden, which the industry is subjected to, including a plethora of levies and fees payable to various government and non- government entities."

Finance Minister Malusi Gigaba delivered his annual budget speech in Parliament on February 21 2018. Here are the highlights. Subscribe to TimesLIVE here:

It was probable that many producers would leave the industry or, where still viable, mechanise to reduce their cost structure, he said. It would take years for those affected by drought and fires to recover, a fact that should be of concern to any economic planners as it would feed into unemployment and growth, Neebe said.

There was a perception that there was no real concern for the wine industry from the government and this had left producers with little choice but to put up or pull out, he said.

"With the capital stock already in the ground, support could be an even bigger lever to propel tourism without major investment, and could result in increased employment and tourism footfall (local and foreign), which feeds into the economy and thus growth of GDP," Neebe said.

Cap Classique Producers’ Association chairman Pieter Ferreira said that in recent years the government had adjusted the alcohol tax reform, which the association welcomed as it included a review of how excise duty on sparkling wine was calculated.

"Champagne and all sparkling wines in SA have always been classed as luxury goods, and therefore we pay more sin tax," he said.

"Intrinsically the process is so much more complex, as are the cost implications of producing it ... but due to the happiness it brings we are burdened with extra sin tax."

Excise duty on sparkling wine had risen well above inflation in recent years, mainly due to the influence of high-priced champagne imports, Ferreira said.

As a result, the difference between the excise duties on sparkling wine and still wine had increased substantially.

The Treasury said it expected to raise R1.9bn in 2018-19 from the health promotion levy, better known as the sugar tax, which is due to be implemented on April 1. The levy is intended to decrease consumption of sugary drinks, which are associated with obesity and other non-communicable diseases.

The tax has been set at 2.1c per gram of sugar per 100ml, but the first 4g is exempt.