PATRICIA PILLAY: Excise relief will be critical to ensure the survival of our local beer industry

Just three years ago the craft brewing scene in SA was exploding, having grown from 50 craft breweries in 2015 to just over 200 by 2019. These breweries employ between two and 100 people, depending on their size, with the smaller ones employing about 10 people on average.

In light of the growing number of South Africans enjoying locally produced craft beers, it was predicted that by 2022 10% of all beers sold in the country would come from craft brewers, serving as a major boost to this sector and the people they employ.

Then the Covid-19 pandemic hit, and along with it four alcohol bans imposed by national government, which has seen our industry lose 161 trade days since March 2020. These bans have had a devastating effect on small businesses across the beer value chain. This includes a devastating 30% of craft breweries that were forced to shut their doors permanently over the past few months, causing an estimated 300 job losses within the craft sector alone.

One of the main reasons for these closures is that little financial relief has been provided by the government to businesses in our industry. If we hope to save this once thriving sector from complete collapse while ensuring the future sustainability of the entire beer value chain and the more than 450,000 jobs it supports, we need enabling government policies to encourage the recovery of our industry.

Critically, our industry cannot survive another above-inflation increase in excise taxes in the coming financial year. The Beer Association of SA (Basa) therefore calls on finance minister Enoch Godongwana to ensure its future sustainability and profitability by announcing excise relief that will help protect businesses and livelihoods across the beer value chain in his inaugural budget speech on February 23.

This follows President Cyril Ramaphosa’s recent state of the nation address, in which he stated that the government does not create jobs — businesses do. It is, therefore, critical that the government creates the conditions for businesses to emerge and grow. Unfortunately, this will not be the case for beer if there is an above-inflation increase in excise taxes.

One of the main functions of excise duties is to discourage the consumption of harmful products. Basa members have already started work to promote moderate drinking and position beer as the drink of moderation. We believe beer is ideally placed for this because of its relatively low alcohol content by volume.  Basa believes that when it comes to excise duties there should be a distinction between beer as an alcohol beverage with a low alcohol-by-volume (ABV) of 2.8%-6%, vs other alcoholic beverages with higher ABVs.

Beer manufacturers have also demonstrated meaningful intent to further reduce the alcohol content of their products through the introduction of no- and low-alcohol beers. Basa believes this should be recognised and incentivised by the government through the creation of a sliding scale of excise duties according to a beverage’s alcohol strength.

It is common practice in many other countries to regulate alcohol beverages based on the beverage type and alcohol strength. For example, in many Organisation for Economic Co-operation and Development (OECD) countries spirits are taxed higher than beer in terms of the excise per litre of pure alcohol, including Australia, Canada, Denmark, Finland, France, Iceland, Ireland, Israel, Mexico, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland and the UK.

Another critical issue is that for the past five years the year-on-year increases in excise duties have been far higher than the inflation rate — a cumulative variance of 17.23%. This goes against the government’s own excise policy guidelines. This relative divergence from the inflation rate has undeniably had a compounding economic effect, especially on investor sentiment.

Above-inflation increases are ultimately absorbed by the consumer. As a result, citizens who find legal products too expensive purchase cheaper illicit products that are not only harmful to their health but also to the fiscus. The illicit market already accounts for 22% of all alcohol sales and has been boosted further by the four alcohol bans since the lockdown started in March 2020, resulting in a R11.3bn fiscal loss.

Finally, in the current tax legislation, small,  medium & micro enterprises (SMMEs) such as craft brewers are not sufficiently recognised or provided with relief in relation to excise duties to encourage growth and job creation in this sector. This is of concern as craft brewers form an integral facet of our local beer industry and culture. In SA craft brewers are supported by large corporates (such as Heineken SA and SA Breweries) since their product offering is not in direct competition.

Our current excise tax regime has made tiers of differentiation possible between large commercial manufacturers and smaller manufacturers in several other industries. By example, in the fuel industry bio diesel manufacturers producing below a certain threshold are permitted to operate as non-commercial manufacturers and are afforded a degree of relief regarding duties and levies owed to government.

Basa proposes that a similar alignment be prepared for our local beer industry in relation to craft brewers. Larger corporates should also be incentivised through tax relief to support and develop the craft brewing sector as a key job creator. 

Given the current economic climate and our staggering expanded unemployment rate of 46.6%, it would make no sense to announce another above-inflation hike, which will kill small businesses such as our craft brewers.

Basa therefore calls on Godongwana to provide them with a lifeline by either announcing no- or below-inflation excise increases or a new tax regime that recognises lower alcohol products and incentivises the growth of SMMEs in the sector.

• Pillay is Basa CEO.