South Africa: Proposed changes for how alcohol is taxed

The Beer Association of South Africa (BASA) has submitted proposals to the National Treasury and the South African Revenue Service (SARS) to change how beer and other alcoholic beverages are taxed in the country.

BASA’s recommendations come as the price of alcohol is hiked each year, with the latest changes from the 2022 budget hiking the price of 340ml can of beer by 11c more. The beer industry has long been pushing for a change in how taxes are calculated.

Specifically, BASA has proposed the following changes:

A) That beer and other alcoholic goods that have lower levels of alcohol by volume (ABV) are taxed proportionally lower than products with higher ABV;

B) That the excise duties period of 30/60 days on all goods under the Excisable Alcohol Products be applied uniformly.

BASA wants the changes because it says the beer industry is currently being taxed disproportionately to other alcohol types, especially given the actual alcohol content.

It noted that wine in South Africa has a significant advantage in terms of excise duties as it remains at R4.96 irrespective of its alcohol content, whereas beer is taxed at a rate based on ABV of R121.41 per litre of absolute alcohol.

“This disadvantage becomes apparent in beer products above 4.5% ABV, with the highest prejudice experienced by the craft beer sector, where beer ABV is generally around 7%. At this point, beer is taxed R3.54 more than wine with the same ABV,” said BASA.

Regarding the second proposal, while excise duties are currently intended to be a consumption tax, wine is also at a distinct advantage in light of excise duties.

“Beer is only due within an average 4.5 months prior to consumption, whereas the duties for wine are due within an average 36 months to actual consumption since wine is able to be consumed and often best consumed after considerable ageing. The same advantage is also enjoyed by most spirit products.”

BASA said that these proposals aim to promote consistency within the current excise regime governing the alcohol industry while also differentiating between products. It added that they also aimed at ensuring the sustainable and inclusive growth of the industry, which plays a vital role when it comes to job creation and economic growth in South Africa.

If implemented, the lower taxation of lower ABV products will also contribute to a reduction of alcohol harm in communities, said the association.

As part of its engagements over the coming months, BASA will write to the Minister of Finance Enoch Godongwana to request a meeting to discuss these proposals and the importance of creating a more uniform tax system for alcohol products in the country.

Significance

The beer industry in South Africa sustains 249,000 jobs, or 1 in every 66 jobs nationwide. The sector contributed R71 billion in gross value added (‘GVA’) to South Africa’s Gross Domestic Product (‘GDP’) in 2020

According to BASA, R1 for every R79 of the country’s GDP is attributable to beer-related economic activity – meaning that the beer industry makes up roughly 1.3% of the country’s GDP.

The submission to SARS and the Treasury was made in collaboration with:

The Craft Breweries Association of South Africa;

Heineken, and;

South African Breweries (SAB).

Beer has the lowest alcohol level at 5% ABV when compared to other products, said BASA. The industry also has demonstrated meaningful intent to further reduce the content in its products through more options.

‘Despite its reduced ABV content compared to other products and the major economic impact of the sector’s value chain, beer has suffered serious bias with regard to excise duties, while other products, in particular wine, have been advantaged.’