South Africa: Beer Association of South Africa calling for redressing disparities in alcohol excise duties

Industry organisation the Beer Association of South Africa (Basa) is appealing to government to redress the disparities in the application of excise duties within the alcohol industry, which have disadvantaged the beer industry in particular, in order to create a more uniform tax regime within the alcohol industry, the Engineering News reported on August 29.

The association made a submission to the National Treasury and the South African Revenue Service (Sars) on the 2022 Draft Rates Bill and the 2022 Draft Taxation Laws Amendment Bill.

Despite beer having the lowest alcohol by volume (ABV) compared with other alcoholic products, beer has “suffered serious bias” with regard to excise duties, while other products, in particular wine, have been advantaged, Basa argues.

"Beer is taxed at an excise duty based on the litres absolute alcohol (LAA) or ABV, while wine is taxed at a rate based on litres irrespective of the ABV. This means that the excise duty liability for wine remains at R4.96 irrespective of the ABV, which ranges between 4.5% and 14%.

"In contrast, the excise duty liability for beer is based on the ABV calculated at a rate of R121.41 per LAA. This disadvantage becomes apparent on beer products above 4.5% ABV, with the highest prejudice experienced by the craft beer sector, where beer ABV is generally around 7%. Beer is taxed R3.54 more than wine with the same ABV," Basa points out.

Further, while excise duties are currently intended to be a consumption tax, wine is also at a distinct advantage in light of excise duties on beer being due within an average of four-and-a-half months prior to consumption, whereas the duties for wine are due within an average of 36 months of 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.

"Beer has the lowest alcohol level compared with other alcoholic products and 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 association adds.

The industry sustains 249 000 jobs nationwide and contributed R71-billion in gross value added to South Africa's gross domestic product (GDP) in 2020. The beer industry contributes about 1.3% of the country's GDP, Basa says.

To promote consistency within the current excise regime governing the alcohol industry, while also differentiating between products, Basa’s submission proposes that the application of an LAA or ABV excise duty system for all excisable alcohol products, which means products with a lower ABV are taxed proportionally lower than products with a higher ABV.

Further, Basa proposes in its submission that excise duty payment terms of 30 or 60 days be uniformly applied for all excisable alcohol products. This would see all products, no matter their shelf life, paying 50% duties within 30 days and 50% within 60 days. This would ensure a constant flow of revenue to the fiscus and reduce the disparity in the alcohol industry, the association states.

"Basa's proposals are 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 harms in communities," it adds.

Additionally, the submission highlights that the application of an LAA/ABV excise duty system has been recognised by the World Health Organisation as the best model for improving public health outcomes as it encourages consumers to buy lower-strength products.

This taxation model has also been adopted by a number of countries including Australia, Canada, Denmark, Finland, France, Iceland, Ireland, Israel, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland and the UK, Basa adds.

As part of its engagements over the coming months, Basa will also be writing to Finance Minister 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.

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