FATSANI BANDA: System of taxing liquor calls for an urgent review

It is understood that builders should focus on foundations as the houses they construct will not stand if they are not  firmly set.

This analogy fits aptly into recent discussions on pricing strategies directed at the reduction of liquor  harm, namely excise taxes and more recently minimum-unit pricing (Mup), where the former forms the base of the policy norm, and the latter is yet to gain momentum as global best practice.

In the wake of the latest call by the Western Cape government for written submissions on the possible introduction of a Mup strategy in that province, SA Breweries would like to reiterate  its long-standing position, which is to address the heart of the issue rather than its symptoms. Creating a retail price floor, even if it is intended to be complementary to excise taxes, may create further market distortions on top of what exists if the effects of MuP  are not fully understood.

SA Breweries has over the past two years made submissions to the government to prioritise addressing the foundational, systemic issues in the excise system described in the 2014 excise policy.

Our core argument is that all alcoholic beverages should be taxed on an alcohol content-based excise system for the tax policy to be harmonised.

At present, lower alcohol beverages such as beer bear 30% more excise taxes relative to some high alcohol beverages, creating  market distortion through price. The wrong price signals are being sent to heavy drinkers, for instance, who can easily trade down to cheaply priced, higher alcohol beverages without any disincentives towards this behaviour  from the excise tax system.

As there are already policy gaps that require change, due diligence would be to seek to improve the excise system approach rather than to add an additional layer of pricing strategy through the introduction of Mup.

The World Health Organisation (WHO)  proposed that “an updated list of the most effective and complementary policy options recommends increasing excise taxes on alcoholic beverages as one of the most cost-effective interventions governments can use”.

The Update Report on the Evidence and Recommended Policy Actions by the WHO says that “stronger alcohol products should be taxed at a higher rate than lower-strength alcohol products. From the perspective of public health, there is little justification for any approach other than specific taxation, through which the tax payable on a product is directly proportional to its alcoholic content.” As a starting point then, all efforts should be directed to improving the excise system and ensuring that it is closely aligned with public health research.

To a large extent then, the conversation about the feasibility of an MUP approach is about the strength of the initial evidence — has enough research been done to ensure a deep appreciation for the historical political economy of the Western Cape, both in the context of alcohol harm and illicit alcohol? (Even excise tax policy discussions, while more mature and developed, must constantly question and refine  issues in light of a better understanding  of how to carefully manage pricing strategies used to deal with alcohol harm).

The evidence that has been put forward to qualify an Mup position is full of gaps and holes, prioritising the advocacy of the position and not the rigour of the research itself. So more work still needs to be done to understand whether the Mup approach has been duly quantified, without creating deleterious market scenarios that destabilise the legal, taxed alcohol market in SA.

The reduction of alcohol harm should be prioritised and nuanced for the respective provinces as it remains a national priority. At SA Breweries, the responsible consumption of beer is central to protecting our licence to trade and, as a result, is a key area which we seek to  influence in a constructive and meaningful way. But when it comes to pricing strategies to deal with alcohol harm, all energy should be directed at improving the excise system.

It also seems far too easy to dismiss the economic contribution of the beer industry and the burgeoning presence of the illicit market as well-established caveats to the introduction of any additional regulations when thinking about pricing strategies to deal with alcohol harm, as part of the research presented on Mup has done.

With no quantitative  data  on the substitution effects created through the interprovincial movement of alcohol, considering how fairly porous our provincial borders are, heavy drinkers and their suppliers will be eager to capitalise on the differential alcohol prices across the provinces and would be inspired to set up wholesale networks on the border of the Western Cape as soon as something like the Mup comes into effect.

The resounding call for the introduction of an Mup approach in the Western Cape should really be a call for SA’s excise policy to be reviewed. A fundamental pivot needs to take place in the direction of improving the foundation of the house before the introduction of walls to support it. The excise system that already exists, with its deep cracks, needs some key structural improvements and as indicated, this should be done by placing all alcohol beverages on an alcohol content-based excise system.

• Fatsani Banda is senior manager: excise tax and public policy at SA  Breweries.