The policy document emphasises that excise tax increases should aim to reduce the affordability of alcoholic beverages.
National Treasury is welcoming public comments on the policy review on the taxation of alcoholic beverages in South Africa.
The potential policy changes will impact budget changes for the next financial year, and going forward.
The review proposes adjustments to the excise tax policy published in 2014, suggesting tax increases for beverages.
Excise duties on sin tax
“Over recent years, excise duties on alcoholic beverages have been increasing above inflation whilst the weighted average retail prices of specific categories of alcoholic beverages have been below inflation,” reads the policy document.
Treasury views that the current framework may no longer be fit for purpose. Policymakers are considering either increasing the guideline tax incidence for all the alcohol categories or having a completely new and different framework.
Adjust the guideline excise incidence
The policy document states that the first option that Treasury is looking at is to adjust the guideline excise incidence by five percentage points for wine and beer, and six percentage points for spirits.
Even though Treasury is considering this option, it acknowledges that it does not resolve the policy issue of excise increases moving above the guideline framework as some of the categories would already be close to the adjusted incidence.
“Unless the adjustments to the guideline incidence are significantly higher, this option will run into similar issues in a few years’ time. As an alternative, a targeted band adjustment on the excise duties framework is preferred and should be considered.”
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Current excise tax framework
Since 2004, Treasury has been applying an excise tax framework based on the percentage of the weighted average retail selling price of alcoholic beverages.
“The current guideline for the tax incidence for wine, beer, and spirits is set at 11, 23 and 36 per cent, respectively.”
The issue of excise duty rate adjustments being higher than inflation and price increases not being able to keep up pace with the excise duty adjustments have resulted in excise incidence being above the policy guidelines for each alcohol category.
The issue has since raised a number of concerns from the alcohol industry.
Differential in the excise duty
“The current excise structure and annual excise adjustment have also resulted in a situation where the differential in the excise duty per litre of absolute alcohol content has widened over time,” reads the policy.
Treasury gives an example: “The beer and spirits excise duty differential has widened by 148 per cent, whilst for wine and spirits, it has widened by 136 per cent. The differential between malt beer and wine has widened at a lower rate of 118 per cent over the 2012/13 to 2023/24 period.”
However, there is concern that the widening tax differentials may be distorting competition in the alcohol industry.
This has raised questions for those who argue for all alcoholic beverages to be taxed at the same rate based on alcohol content.
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Alcohol abuse
Another factor that has led Treasury to review the policy is the harmful use of alcohol.
The World Health Organisation (WHO) reported that worldwide, harmful use of alcohol results in over 3.3 million deaths (representing 5.3% of all deaths) every year and is a causal factor in more than 200 diseases and injuries.
The 2018 report by WHO revealed that 59% of South Africans over 15 years of age engage in heavy episodic drinking.
“Considering that the daily average consumption is reported at 64.6 grams of pure alcohol, it means the problem of heavy episodic drinking is significant.”
Affordability of alcoholic beverages
The policy document emphasises that excise tax increases should aim to reduce the affordability of alcoholic beverages.
“Affordability of alcoholic beverages, determined by relative prices of alcoholic beverages, rates of inflation, and consumer income, is one of the most important factors affecting alcohol consumption.
“Alcohol taxes and pricing policies are an effective tool to target the affordability of alcohol, and internalise the external costs of alcohol abuse, by adjusting alcoholic beverage prices.”
The public can submit its comments to 2024Alcoholreview@treasury.gov.za by close of business on 13 December 2024.
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