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A recent study has shown the illicit alcohol trade has increased by 55%, costing the South Africa roughly R25 billion in lost tax revenue.
Image for illustrative purposes. Picture: iStock
Illicit alcohol traders are making a fortune selling knock-off liquor to unsuspecting and desperate patrons.
Euromonitor International, in partnership with Drinks Federation South Africa (DFSA), this week revealed the runaway popularity of the illicit alcohol trade.
Between traders prioritising profits and consumers choosing cheaper options, the country is missing out on just over R10 billion, excluding Value-Added Tax (VAT), on untaxed spirits alone.
Almost 20% of all alcohol
Euromonitor’s most recent study, conducted over the last six months, was presented to industry leaders virtually on Wednesday.
To gauge how illicit alcohol was distributed and consumed, the global research firm surveyed the product’s prevalence in retail and independent traders, as well as the habits and preferences of consumers.
Through desk research, store visits and surveys across multiple geographic and income demographics, Euromonitor illustrated how the illicit trade makes up 18% of the country’s overall alcohol market.
This 18% amounts to the consumption of 773000 hectolitres — or 77 million litres a year— with an estimated price tag of R25 billion.
“This is largely driven by counterfeit and illicit brands. This is because counterfeiting and illicit brands target premium spirits such as whiskey, as well as premium vodkas and gins,” stated Euromonitor International Project Manager Benjamin Rideout.
This translated into R16.5 billion in lost tax revenue, with South Africans’ preference for white and dark spirits contributing to roughly R10 billion of the tax shortfall.
“If these drinks were taxed correctly and sold legitimately, this is what the tax value would be,” explained Rideout.
Increasing fiscal loss
Euromonitor stated that illicit traders were purchasing and manufacturing counterfeit labelling and packaging at an “industrial scale”.
While the main driver of lost tax revenue was counterfeit and illicit brands, which are replica and unbranded products, smuggling and tax leakage were the next highest causes.
Smuggling of legitimate products is done via land, air or sea, while tax leakage was classified as compliant liquor that is intentionally misclassified or underdeclared.
Having conducted the same study in 2017 and 2020, Rideout said the illicit alcohol trade in South Africa had grown in volume consumed by 55% in the last seven years.
“It has almost doubled in value terms, which is a function of inflation in general. Finally, the fiscal loss has increased by 157%.”
Rideout said illicit alcohol was predominant in informal channels, but there was a growing trend of availability in retail and online sales.
“What this means is that the illicit market has established a distribution network, and we know this to be the case, particularly in Gauteng and KwaZulu-Natal.
“On average, illegal alcohol is 37% cheaper than legal alcohol per litre. In some cases, this discount can go as high as 70%, depending on the category and the brand,” he stated.
‘Crime against the state’
Euromonitor noted that the financial benefits to traders and buyers were given greater consideration than the potential health risks considered by either party.
Convenor of the National Liquor Traders Council Lucky Ntimane said it was an outlets’ responsibility to ensure they maintained high standards or risk ruining their reputations.
“We also know the catch of illicit alcohol is the price, so people don’t really ask a lot of questions. The essence of illicit and counterfeit alcohol is that it is cheaper.
“However, a person who sells counterfeit — knowingly or unknowingly — they run the risk of their business not being supported,” Ntimane told The Citizen.
Traders caught selling illicit alcohol can be subject to a fine of up to R500 000 or between one and three years in prison, depending on the volumes sold.
Rideout stated that policing challenges included “resource allocation and state capacity,” while Ntimane suggested a firmer hand needed to be taken with illegal traders.
“Because illicit and counterfeit alcohol robs the state of an income, maybe it should be classified as a crime against the state.
In that way, the government can clamp down hard on these unscrupulous dealers, but also harsher sentences can be meted out,” concluded Ntimane.
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