E-Malt.com News article: South Africa: Beer industry calling for excise tax in line with inflation or lower as current tax could lead to destruction of sector

South Africa’s beer industry is calling for an excise tax that is in line with inflation or lower, with major producer South African Breweries (SAB) saying the current tax of 25% is excessive and could lead to the destruction of the beer industry, Mail & Guardian reported on September 30.

A recent report commissioned by SAB and undertaken by Oxford Economics Africa found that existing excise duties on beer are far above the levels stipulated in the country’s excise policy.

In terms of Schedule 1 Part 2A of the Customs Act, the guideline excise tax burden for beer is 23%, two percentage points lower than where it is.

The report said the government disproportionately relies on the beer industry for excise revenue, representing 34.7% of total excise revenue in 2023-24. This makes beer the largest of all excisable products.

Commenting on the report’s findings, SAB chief executive Richard Rivett-Carnac said the industry needed strong policy certainty about excise tax.

“We understand that the government is under pressure from a budgetary perspective. For 10 years we have seen inflated excise tax increases when compared with inflation,” Rivett-Carnac said in a statement.

“That is contrary to the policy and really impacts the industry — an industry that is very important for the country, job creation and economic growth. At the end of the day, this has a negative impact on an industry that is inherently local and inclusive, supporting nearly 250 000 livelihoods.”

The chief executive of the South African Institute of Taxation, Keith Engel, said tax authorities need to find a delicate balance between generating revenue through beer excise taxes and mitigating the economic effect on the industry.

“The unpredictability of excise tax increases threatens the principle of fair taxation,” he said.

The treasury announced above-inflationary “sin tax” increases in the 2024 budget tabled in February. The department said it aims to raise R15 billion in the 2024-25 fiscal period to “alleviate immediate fiscal pressure and support faster debt stabilisation” and R800 million is expected to be generated through higher excise duty.

The increases range from 6.7% to 7.2% for alcoholic beverages, raising the price of a can of beer by 14 cents, while the price of wine and spirits has increased by 28 cents and R5.53 respectively.

According to the report, higher production costs, excise duties and inflation have increased beer prices substantially, with a 500ml bottle more than doubling in both price and taxes over the past decade.

Rising beer prices have weighed on demand, with consumption increasing by a muted 0.8% a year on average from 2012-13 to 2023-24.

The beer industry has in recent years also been hit by a shift away from the product as people become more health conscious and consume beverages with less alcohol content.

Earlier this month, Remgro reported that its full-year headline earnings fell by 20%, hit by a poor performance by Heineken, which cost the company R386 million.

Remgro chief executive Jannie Durand said the trading results of Heineken Beverages were the consequence of a number of operational problems, as well as a persistently difficult consumer environment.

increases in excise taxes reflect directly on beer sales, said Lucky Ntimane, the convenor of the National Liquor Traders Council that represents independent traders and taverns in South Africa.

“The price of beer is so sensitive that even a R1 increase affects the demand. So, yes, an increase in excise tax impacts beer sales in the tavern market,” he said.

“In the tavern you get two types of customers. Those who drink to get drunk and those who want to socialise. So, for the former, they will end up looking at other alternatives if beer gets too expensive.”

Ntimane said he did a study in 2020 that found that in 100 taverns, 30% of the stocked products were beer.

“This means that at the centre of the tavern market is beer, and if people cannot afford to buy beer, this can hurt the tavern market,” he said.

Economist Sifiso Skenjana, the managing director of ESG Analytics, said an increase in taxation had a direct effect on consumption.

He referred to the Laffer curve — an economic tool that illustrates a theoretical relationship between rates of taxation and the resulting levels of government revenue. The curve assumes that if tax rates are increased above a certain level, revenue can fall.

“It talks about the extent to which you get incremental benefits for any additional increases in taxation. So, there comes a point in time where any additional increases in taxation actually destroys the industry,” Skenjana said.

Excise taxation is outside of the guidelines set out in the Customs Act about how beer should be taxed, he said.

In its 2014 review of the taxation of alcoholic beverages in South Africa, the treasury said cross price elasticities suggested that tax interventions might have the effect of shifting consumption towards alcoholic beverages with higher alcohol content.

Skenjana agreed, saying that although increasing the excise duty might result in lower consumption of beer, this could have a negative overall health outcome of driving people towards higher concentrated spirits.

“One excise decision can have multiple ripple effects,” he said.


30 September, 2024