Minister of Finance Trevor Manuel is expected to announce a rise of about 10,8% in excise duties on tobacco products — or 42 cents per pack of 20 cigarettes — when he unveils the government’s Budget for 2004/05 in Parliament on Wednesday. This is the same increase as that implemented in last year’s budget.
Also, the minister is expected to announce substantially higher increases in excise duties on alcoholic beverages, according to local industry participants.
Currently an average pack of 20 cigarettes costs the consumer R11,40, including R3,89 in excise duties and R1,40 in value-added tax (VAT, 10% of the retail price).
According to André van Pletsen, spokesperson for British American Tobacco South Africa, excise duty is forecast to increase by 42 cents, from R3,89 per pack to R4,31. The total rise in the price of tobacco products, however, will be higher than this, once one accounts for VAT. Thus the average packet of 20 cigarettes is likely to cost the consumer more than R12, including VAT.
The government’s policy, introduced in 1994, is to maintain a tax incidence (excise duty plus VAT) of 50% on tobacco products, meaning taxes should comprise 50% of the total retail selling price of the most popular brand for each category of tobacco products.
Last year in the 2003/04 Budget the government increased excise duty on cigarettes by 10,8% (10,7% in 2002), cigarette tobacco by 20,9% (43,7% in 200), pipe tobacco by 10,9% (12,3% in 2002) and cigars by 39% (15,4% in 2002).
“In the past 10 years the rises in excise duty have been well in excess of inflation,” Van Plettsen pointed out. “With total taxes of R5,29 per packet currently, it is already very attractive for smugglers to bring tobacco products into the country illegally, avoiding taxes, and increasingly higher duties will only make it more attractive.”
Alcoholic beverages
Manuel is expected to announce substantially higher increases in excise duties on alcoholic beverages.
Distell’s director for industry affairs Andre Steyn said he was expecting duty rises of between 25% and 30% following last year’s restructuring of the way taxes on alcoholic beverages are determined. The government’s 2003/04 Budget boosted alcohol taxes by between 10% and 11%.
The restructuring, unveiled in the 2003/04 Budget after two years of consultations with the industry, saw the total tax burden, comprising excise duties and VAT, measured as a percentage of the weighted average retail selling price for spirits, clear beer and wine, fixed at 43%, 33% and 23% respectively.
The government indicated that these percentages were targeted to be implemented within three to five years.
Currently the gap between the actual and targeted tax levels is highest for wine, with close to a doubling of current levels necessary to get to the 23% target, Steyn explained. Increases of between 25% to 30% per year would be required to attain the 23% level within three years, he said.
However, there are also ongoing discussions between the local industry and the government as to the most appropriate measurements to be used to determine the base weighted average retail price in each of the various categories. The current measure, that determined by AC Nielsen, was recognised by both sides as being unrepresentative.
“The Nielsen price measures are more focused on urban, off-consumption sales outlets, while a larger percentage of sales actually takes place in rural areas and on-consumption premises. The government has already agreed that the base for measuring the prices is not representative and needs to be refined.
“We would argue that the government should not implement the duty targets aggressively without agreement on a representative measure of retail prices.” — I-Net Bridge