E-Malt.com News article: Zambia: Zambian Breweries forced to increase prices due to 50% beer excise hike

Zambian Breweries Plc. announced on January 3 an increase in the recommended retail price of its clear beer alcoholic beverages by 16% on its Returnable Glass Bottle (RGB) pack, excluding sorghum-based Eagle Lager, taking effect January 1st 2014. This follows the 50% increase in Excise Duty on clear beer from 40% to 60%, which the government recently announced as part of the 2014 National Budget - an increase that will make Zambian beer the most expensive in the region.

As a result, in order to mitigate illegal smuggling that would result from higher beer prices relative to its regional peers, which was caused by the increase in excise duties, the company has, for the time being, decided to absorb the excise increase on its non-returnable packs. Zambian Breweries Plc. believes that this measure will reduce the detrimental effects that the excise duty increase will have on local manufacturing. The company, however, notes that since it will continue paying excise tax on the non-returnable packs, the increased excise duty will be an added direct cost to the product type and will therefore detrimentally affect company profitability.

Making the announcement, Zambian Breweries Plc. Managing Director, Mr. Anele Malumo, said:

Excise duties on beer are a consumer tax that we collect on behalf of the government. As a business, we do not pay the tax on behalf of consumers, and we are, therefore, merely passing it on. This is exactly what we did back in 2010 when the government reduced the excise duty rate from 60% to 40%. Zambian Breweries Plc. then passed on that full benefit of the excise adjustment to consumers through price reductions.

Since the excise rate reduction in 2010, we have paid over K976 million in Excise Duty and VAT remittances to the government as of March 31st, 2013, as our annual sales of clear beer grew by 31% between April 1st, 2010 and March 31st, 2013. During this period, when the excise duty rate remained stable at 40%, we demonstrated restraint in adjusting beer prices resulting in a real price reduction of 4.2% between 2010 and 2013.

Employing over 1000 staff, Zambian Breweries Plc. is the largest beverage company in the country, and is a major contributor to economic development and GDP growth through its tax remittances and employment creation.

Since March 31st, 2008, the company has made a total capital investment of $382 million in its operations. Following its recent US$98 million investment in building a new brewery in Ndola, the company is investing a further US$32.6 million in a Malting plant in the Lusaka South Economic Multi-facility Zone (MFEZ) as part of its local-sourcing barley programme, which supports Zambia's agricultural developement. However, in anticipation of the impact of the excise rate increase, the company has had to adjust its business and investment plans for the future. Whilst this will not affect its investment in the malting plant, the company has, among other investments, pulled back its plan to invest US$15 million in a new packaging line at the Ndola Brewery and will continue to seek opportunities to manage costs and maintain a healthy balance sheet.

With the excise-induced increase in prices on its RGBs, Zambian Breweries Plc. expects its annual beer sales volume to decrease from its current levels due to consumer price elasticity and smuggling. Consequently, the company anticipates that its total tax remittances to government will decrease in tandem year by year compared to what it would have paid had the excise rate remained unchanged.


03 January, 2014