Beleaguered alcohol industry hopes for a tax reprieve

Sales tax on alcohol, designed to cover the costs of alcohol abuse to society, usually increases above inflation, but the Covid-hit alcohol industry is hoping that when finance minister Tito Mboweni gives his budget speech, this long-standing trend will be reversed.

Still reeling from the effects of lockdown bans, the industry believes it would actually help the government if Mboweni keeps a lid on sales tax on alcohol.

The SA Liquor Brand Owners Association’s CEO Kurt Moore said recently that a below-inflation adjustment would not only be in the liquor industry’s interest but would stem the decline in liquor sales and thus stop the fall in taxes caused by the bans.

Moore said in a statement: “Our view is that a less than inflation adjustment for 2021 will deliver a better and quicker recovery to pre-Covid-19 volume and tax contribution numbers.” 

The National Treasury estimated in its medium-term budget policy statement that the first two alcohol sales bans would cause a decrease in excise taxes from almost R47bn collected in 2019 to R33bn.

The industry has highlighted that excise tax has been rising above inflation for years, making alcohol more expensive for consumers and producers, who also absorb some of the costs.

Sales tax on alcohol differs per product and is highest for drinks with high alcohol volumes, such as spirits, and lower for beer. Except for 2020, excise tax has risen above inflation each year for many years, significantly increasing what consumers pay for these products.

SAB, owned by the world’s largest brewer AB InBev, has been extremely critical of alcohol sales taxes rising above inflation.

Hellen Ndlovu, director of regulatory and public policy at SAB, says: “As an industry, we bore the brunt of lockdown regulations and we did this for the good of the nation. Have we not done enough? When excise remains flat, the beer value chain can start to grow again. All we need our minister of finance to do is tax responsibly.”

The Treasury admitted in a 2014 policy document on tax and alcohol that it had increased taxes on alcohol above inflation consistently between 2002 and 2014. In the document, it reported that excise rates between 2002/2003 and 2013/2014 rose by 149% for beer, 233% for wine (from very low levels), and 234% for spirits, but the cumulative consumer price index only increased by 62% over the same period.

Charles Parry, director of the Alcohol, Tobacco & Other Drug Research Unit at the SA Medical Research Council, also doesn’t think excise taxes need to be too high, but must be high enough to help reduce harmful drinking, which he says is rife in SA. “It is important that SA continues to increase excise taxes at or above inflation, as it has done in the past.”

Dropping excise taxes below inflation or keeping them flat, as requested by SAB in a social media campaign, would “compound SA’s problem with heavy drinking”, he says.

In the 2014 document, the Treasury says tax is needed to recover the costs of alcohol abuse, but excise taxes go directly to the National Revenue Fund and are not specifically earmarked for trauma, violence or any of the direct harms of alcohol.

Parry says, ideally, a portion of the excise taxes should be ring-fenced to address alcohol harms, or the government could consider an additional levy of between 1% and 2%, on top of the excise tax, to be used to establish an organisation to promote health.  

UCT economist and director of the research unit on the economics of excisable products, Corné van Walbeek, says big alcohol producers will always argue that alcohol taxes are too high and should be lower, as it is in alcohol producers’ self-interest to keep alcohol as cheap as possible.

From a health perspective, though, Van Walbeek says there is evidence that increasing excise tax on alcohol, cigarettes and sugar-sweetened beverages is a highly effective and efficient way of recouping costs associated with the consumption of the products at relatively little cost to society.

“From my perspective, as a public health advocate, we should be aiming for substantially higher taxes on alcohol, together with means to support our alcoholics to get rid of the addiction ... that would create a better and less harmful society in SA.”

childk@businesslive.co.za