The South African alcohol and tobacco industry has slammed the 8% increase in excise tax, announced by Finance Minister, Tito Mboweni during Wednesday’s 2021 Budget Speech, saying it will further strain the both industries and drive people towards the illicit market.
South African liquor Brandowners Association (SALBA) CEO Kurt Moore emphasised that tax adjustments did not take into consideration a significant increase in the size and efficiency of the illicit market that has grown during the sales bans under the Covid-19 lockdown.
“With thousands of businesses across the value chain looking into the financial abyss due to the three sales bans over the past 12 months totalling R36 billion in revenue losses, there is no contingency for tax increases forcing further drastic action to cut costs.
“We will see tens of thousands of job losses within the sector whose livelihoods cannot be sustained, ” Moore said in a statement.
Alcohol ban consequences
SALBA made submissions to Treasury and SARS, reflecting its assessment of the economic situation currently facing the industry due to the bans of alcohol sales during the lockdowns.
“Treasury itself forecast a 28% decline in tax revenue contribution from alcohol excise tax, with a three-year loss of R35 billion. This was due to a volume drop ranging from 21-24% for wine, spirits and beer categories.
“The 8% tax increase on legal alcohol gives an opportunity for further growth in illicit trade competitiveness as more consumers are less able to afford legal, tax paying alcohol products.”
Meanwhile, Vinpro MD Rico Basson said that the serious financial position in which industry finds itself needed stability, policy certainty, and financial dispensation.
“The higher than expected excise increases detract from this and could inflict a final blow to many businesses that are already on their knees, which will, in turn, contribute to the already large number of job losses and exacerbate the socio-economic challenges in these communities,” added Basson.
Increase means nothing to illicit market
The South Africa Tobacco Transformation Alliance (SATTA) also bemoaned the tax increase, saying that it believes that government is “going about it the wrong way” on its desire to increase tax revenue.
“An 8% excise increase equates to an increase of R1.39 in the price of a legally produced packet of cigarettes. It means nothing to those who manufacture and sell illegal cigarettes, apart from making their illicit products even more affordable.
“It will drive more and more people towards the illicit market – which means government will make even less money than it made before,” SATTA spokesperson Zachariah Motsumi said in a statement.
Motsumi noted that the ban on tobacco products had already had a devastating impact on the sector.
“Many farmers went out of business and many others are still struggling to recover from 8 months of lost business due to the Covid-19 lockdown and the ban on cigarette sales.
“According to our research, the illicit market grew by a staggering 3.1 billion cigarettes in a single year. That’s a loss of excise revenue of almost R13-billion for the government, and billions more for farmers, processors and manufacturers.”