No cheers: The treasury aims to curb alcohol consumption because of its role in health problems and road deaths.
The treasury’s proposal last year to increase taxes on alcohol — wine, beer and spirits — in a bid to curb excessive consumption is unlikely to be effective, experts say.
The finance minister, Enoch Godongwana, is expected to make the controversial announcement in his budget speech next month — the first under the coalition government formed last year after the ANC lost its parliamentary majority in the general elections.
Late last year, the treasury proposed setting a minimum price for alcoholic beverages to reduce harmful consumption, which is a drain on the country’s health resources.
According to a policy analysis document released by the department, the minimum unit price would prevent producers and retailers from absorbing some of the tax increase and offering large discounts on alcoholic products.
While raising taxes might increase revenue “to a certain extent”, it might not “encourage behavioural change as the government would have wanted or expected it to” cautioned Evádne Bronkhorst, a chartered tax adviser specialising in indirect taxes at audit firm Forvis Mazars.
“It could actually increase the black market and that would expose South African consumers to buying alcohol that doesn’t meet regulations, which is also not conducive to preserving South African consumers’ health.
“I think the government should be careful in how they go about this and manage it,” she told the Mail & Guardian this week, on the sidelines of a roundtable discussion ahead of the budget.
The treasury opened the proposed tax for public comment in November, saying it was intended to curb road deaths caused by excessive alcohol consumption and to safeguard consumers’ health.
“The harmful use of alcohol is one of the leading risk factors for population health worldwide and has a direct impact on many health-related targets of the sustainable development goals,” the treasury said in the document.
It noted a study conducted by the World Health Organisation which said that, globally, the harmful use of alcohol resulted in more than 3.3 million deaths annually and was one of the causes of diseases and injuries.
According to the treasury, South Africa has been applying an excise tax framework which provides a guideline “for the tax incidence as a percentage of the weighted average retail selling price of alcoholic beverages since 2004”.
Tax incidence refers to who bears the relative burden of a new or existing tax that is levied.
The guideline for the tax incidence for wine, beer and spirits is set at 11%, 23% and 36%, respectively.
When the treasury applies measures, such as the sugar tax which was introduced in 2018, to boost health outcomes, it essentially means some consumers are no longer able to afford the products that contain the offending components, said Althea Soobyah, who is the head of tax at Forvis Mazars.
“On the one hand, you’re trying to curb the fatality rate by increasing the alcohol taxes, and on the other side, what’s the impact of that?
“Who’s going to carry [the tax] from a manufacturer, retailer and alcoholic beverages producer perspective?” Soobyah asked.
She pointed out that one of the results of imposing such taxes on the consumer was that retailers effectively missed out on some revenue — affecting their ability to pay more tax.
The treasury noted that the affordability of alcoholic beverages, determined by their relative price, rates of inflation and consumer income, were considered to be one of the most important factors affecting consumption.
The treasury insists that tax on alcohol and pricing policies are effective tools to reduce consumption by making alcoholic beverages unaffordable to some.
The proposed tax would affect wine, beer and spirits based on their alcohol content. Spirits, which include tequila, rum and gin, would be taxed at a much higher rate than other categories of alcohol.
Wine with low alcohol content would still be assigned the current excise duty rate of R4.96 per litre, while wine with an alcohol content ranging from 4.5% to 9% per litre would be taxed at R6.94 per litre. Wine with a high alcohol content — 9% to 16.5% per litre — would be taxed at R8.93.
But Zandile Makhoba, a consumer economist at Liberty, noted that “alcohol is not a product people reduce consumption of, even when prices increase”.
“(The) downside is that we may start to see consumption of other products decline, to afford the rise of alcohol,” Makhoba told the M&G.