Beer industry warns above-inflation sin tax to fuel illicit alcohol market

The beer industry has warned that the above-inflation increase in excise duties will drive more financially-constrained alcohol consumers towards illicit alcohol in the black market, resulting in devastating health and employment consequences.  

Finance Minister Enoch Godongwana announced a 6.75% increase in excise duties a fortnight ago as part of the new fiscal policies, which include a percentage point increase in the Value-Added Tax (VAT), to plug the Budget deficit.

This means that prices for beer and ciders increased by 16 cents for a 340-milliliter can, while a bottle of wine now costs 29 cents more, with sparkling wine going up by 90 cents, and spirits seeing an increase of just under R6 a bottle.

However, the industry sees the surge in sin taxes as a significant barrier to investment, which will raise the cost of production and ultimately burdening the consumer.

Charlene Louw, CEO for the Beer Association of South Africa (BASA), on Friday said the beer industry was playing a meaningful part in growing South Africa’s economy as it touched a variety of sectors in its value chain. 

Louw said recent research showed that the beer industry alone contributed R19 billion towards gross domestic product in South Africa and made a tax contribution in the region of 34% of taxes collected by SARS and also created more than 210 000 jobs.

She said they were disappointed by the higher increase in excise duties as the industry had requested the National Treasury to consider an inflation-related increase. 

“We believe that it hampers investment because this means now the cost of production is going to go up. We all know as we've been talking today, water is more expensive, electricity is more expensive and the cost of production is expensive,” Louw said. 

“You add excise to that, you add an additional VAT amount to that. It really is a knock to the industry, but even more so a knock to the consumer because it means consumers are already stretched and affordability is not there anymore.”

Consumer affordability has become a pressing concern as many individuals and families find their purchasing power steadily eroded by inflation, interest rates, fuel and administered prices. 

Louw said consumers were looking for cheaper options and at times these were illicit options that were concocted and were not good for human consumption.

A 2021 study commissioned by the industry and conducted by Euromonitor confirmed that the illicit industry accounted for 22% of the alcohol industry in South Africa.

“And that's ultimately what happens when you overtax an industry. Consumers get burdened. They can't buy the legal alcohol and then they find the [cheaper] alcohol from the corner shop. And that's what unfortunately becomes the consequence of driving taxes too high.

“And it just ensures that this particular industry can't invest more into the South African economy, into the job market, into infrastructure, into manufacturing because now it needs to take the blow and absorb that increase. We're not happy, but we continue to lobby and hopefully at some point we do get through to the government for them to really see the meaningful impact that this industry has and how they may need to look at a different approach around taxation, particularly for beer.”

Louw was speaking on the sidelines of the World Water Day celebration by SAB at the Boland Mountain Nature Reserve in Cape Town on Friday. 

Cape Town Mayor, Geordin Hill-Lewis, said the city defeated Day Zero by cutting water consumption by 55%, and no one else in the world had ever seen such a huge drastic cut in personal water consumption.

“We realised we could no longer rely for the coming decades on rainfall alone. And so since 2018, we have been pursuing a strategy of how to secure additional supply of water. And we, we are doing groundwater abstraction where we drill into, into the aquifer and, and take water up out of the aquifer,” Hill-Lewis said.

“We're investing in water reuse, which is another public private partnership that we are doing. Currently the largest water reuse plant in the whole world is soon to be constructed in Cape Town and later towards the end of the decade we will go down the path of desalination as well.” 

With 95% of beer comprising water, the crucial resource plays a pivotal role in production in a country often defined by water scarcity.

SAB sees this as an opportunity to leverage local resources and community spirit to foster sustainability and job creation, and the brewing giant has made strides in reducing its water consumption by more than 30% across its breweries over the last five years.

Michel Doukeris, CEO of AB InBev, SAB’s parent company, concurred about the beer industry’s contribution to economic growth and job creation, quoting a report from Oxford University that showed the impact of the beer industry on the local economies. 

“When you think globally, beer is involved in one out of 100 jobs created in any given market. In South Africa, this number is one job for every 66 jobs. And the jobs come from agriculture because most of the hops, barley that we use for our beer we produce here in South Africa, the bottles, the cans, everything that goes into beer. 

“Then you have the beer production jobs. Then you have the logistics to have this beer get into the market. And then of course, the taverns, the bars, the restaurants, they also generate jobs. So one in 66 jobs in South Africa touch somehow the beer value chain. And this is incredible because beer is at the foundation that then expands after beer is produced to the logistics, to retail sales, marketing, that are all very important jobs of society.”

BUSINESS REPORT