More job cuts looming as 8% sin tax further empties battered liquor industry’s cup

South Africa’s liquor industry pays R2.5 billion a month in excise duties

  • The alcohol industry, which pays an average of R2.5 billion in excise tax every month, has been pleading with government to halt the annual increase this year, saying it would have to take “drastic action” to cut costs. 
  • Excise tax is the largest cost for manufacturers and the industry contributes R172 billion (3%) to the country’s GDP.
  • The industry says the 8% increase in alcohol duties will result in tens of thousands of job losses.

South Africa’s alcohol industry says “tens of thousands” of jobs are on the line, following Finance Minister Tito Mboweni’s announcement of an 8% excise tax increase on liquor and tobacco.

Over past few weeks, the industry – which pays an average of R2.5 billion per month in excise tax – has been pleading with government to halt the annual increase this year, saying that it would be detrimental to the industry that was trying to recover from the impact of Covid-19-related bans on alcohol sales. The tax is the largest cost for manufacturers and the industry contributes R172 billion (3%) to the country’s GDP.

“The South African alcohol industry notes with grave concern Mboweni’s announcement … that excise tax will be increased by 8%, which will exceed the targeted excise duties for wine, beer and spirits set by Treasury itself, at 11%, 23%, and 36% respectively,” said the group in a statement issued by the South African Liquor Brand Owners’ Association (Salba) following Mboweni’s speech on Wednesday. 

The industry is at risk of shedding more than 200 000 jobs and has lost R36 billion in sales revenue, over the course of the bans imposed by the government last year, with the previous ban being lifted earlier this month. Government’s rationale for the ban was that it needed to be in place to keep hospital beds clear of alcohol-related trauma cases and free for Covid-19 patients. But the industry has hit back, saying that an outright ban was not the solution and curfews were more effective.

Kurt Moore, CEO of Salba, said the industry would be forced to take drastic action to cut costs since it did not have contingency for the tax increase.

“We will see tens of thousands of job losses within the sector whose livelihoods cannot be sustained,” Moore said.

He added that the a less-than-inflation increase for 2021 would have resulted in a better and faster recovery to pre-Covid-19 volumes and tax contribution. Moore said government’s tax adjustments also needed to take the growth of the illicit alcohol market into consideration and the 8% tax on legal liquor fuels the growth of the market that cash-strapped consumers will turn to. 

‘Catastrophic damage’

“We therefore implore the government not to impose any future alcohol bans as they will cause contributions to plummet further, creating catastrophic damage not only to the fiscus, but the country’s socioeconomic situation and the long-term survival of the industry,” added Moore.

Rico Basson, managing director of wine industry representative Vinpro, said wine producers and businesses we disappointed that government had not heeded its call.

“We have emphasised the plight of the South African wine industry in discussions with Treasury over the past few months and requested that excise duty be raised by no more than 50% of the consumer price index (CPI). The above-inflation excise tax increase follows on the back of a 16% wage and 15% electricity increase that will have to be absorbed at farm level,” said Basson. 

The group said excise duty increases may not affect consumers, but are passed on to wine grape producers and for an average bottle of wine sold at R45, government earns R10.04 from excise duty and VAT, while wine grape producers earn a net farming income of 77c per bottle.

The Beer Association of South Africa said: “This [excise hike] is a kick in the teeth for everybody in the beer value chain, and especially small craft brewers – whose businesses have been shattered by 19 weeks of restricted trade.”

The group said government’s bans, which came without prior communication to businesses in the sector, were “abhorrent” and the excise tax increase would place further strain on brewers.

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