South Africa: Beer Association lobbying for change in beer taxation

The Beer Association of South Africa (BASA) is lobbying the government to change how beer is taxed in South Africa, Business Tech reported on September 1.

In a presentation to parliament’s standing committee on finance this week, the association focused on the negative impact of above-inflation increases on the beer industry, which it says has already been devastated by the Covid-19 lockdown and four alcohol bans over the past 17 months.

BASA has specifically raised complaints around excise tax, which it says should not be applied equally to all alcoholic beverages.

“One of the main functions of excise duties is to discourage the consumption of harmful products.

“BASA has therefore argued in its submission that there needs to be a distinction between beer as an alcoholic beverage with a low alcohol-by-volume (ABV) of 2.8% to 6.0% alcohol versus other alcoholic beverages with higher ABVs.

“The beer industry has also demonstrated meaningful intent to further reduce the alcohol content in its products through the introduction of no and low alcohol beers.”

The group said it is also common practice in many other countries to regulate alcoholic beverages based on the beverage type and alcohol strength.

“For example in many OECD countries spirits are taxed higher than beer in terms of the excise per litre of pure alcohol including Australia, Canada, Denmark, Finland, France, Iceland, Ireland, Israel, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.”

BASA said that the year-on-year increases in excise duties have been far higher than the inflation rate over the past five years – a cumulative variance of 17.23% – which goes against the government’s own excise policy guidelines.

“This has had a negative impact on investor sentiment with Heineken South Africa halting plans to invest R6 billion into the construction of a new plant in Kwa-Zulu Natal and South African Breweries deciding not to invest in a R5 billion production plant in South Africa.”

These above-inflation increases are also ultimately absorbed by the consumer, it said.

“As a result, citizens, who find legal products too expensive, purchase cheaper illicit products which are not only harmful to their health but also the fiscus.

“The illicit market already accounts for 22% of all alcohol sales and has been boosted further by the four alcohol bans since the lockdown started in March last year, resulting in a R11.3 billion fiscal loss.”

BASA said that the beer industry also includes over 200 smaller craft brewers, who have received zero financial relief from the government despite being forced to close down for 161 days since March last year.

Within the current tax legislation, Small Medium and Micro Enterprises (SMMEs) are not sufficiently recognised or provided with relief in relation to excise duties to encourage growth and job creation in this sector.

BASA believes that the government should provide craft brewers with a degree of excise relief. It said that larger corporates in the industry should also be incentivised through tax relief to support and develop the craft brewing sector as a key job creator.

“To ensure the long term survival of the beer industry, which supports over 450,000 livelihoods, BASA is calling on the government to consider either maintaining the current excise duty rate or a below inflationary increase in next year’s Budget speech.

“BASA will be writing to the minister of finance Enoch Godongwana to request a meeting to discuss the negative impact of excise taxes and new tax regulations which recognise lower alcohol products as well as incentivises the growth of SMMEs like craft brewers.”

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