Raising alcohol excise tax won’t plug govt’s debt hole, says liquor organisation

Government’s mounting budget deficits will not be saved by raising excise taxes on alcohol, organisation National Liquor Traders (NLT) has said in anticipation of the upcoming budget speech. 

Finance Minister Enoch Godongwana will be tabling the 2022 budget on Wednesday, having to juggle a tough balancing act of Covid-19, unemployment, embattled state-owned enterprises and stunted economic growth. 

But despite these challenges, NLT convener Lucky Ntimane said the alcohol industry in the country cannot afford any more stifling measures. 

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Covid-19 and the booze sector

Ntimane said the alcohol value chain supports almost one million livelihoods, and that the impact of the pandemic and alcohol bans of 2020 left “deep scars”. 

It is estimated it will take up to five years for the industry to get back to 2019 operational levels, he said. 

“The government already runs a large budget deficit, which means it must borrow more. The cost of that debt is taking up an ever-larger chunk of the budget, which means cuts must be made. 

“Yet our education, law-enforcement and health systems need more resources, not less. How will Godongwana satisfy all of these needs when the pot of money he can draw from is growing slower than the need?” 

“He may be tempted to raise taxes, but would this plug the hole? The experience of the alcohol industry suggests it is not so simple. 

“Excise taxes on alcohol have been quadrupled since 2000, in the hope that this would encourage heavy drinkers to change their ways, but this hasn’t happened. 

“Actually, per-capita alcohol consumption has stayed more or less the same.” Ntimane said.

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Illicit trade to benefit from sin tax

To make matters more complicated, illicit alcohol trade has almost doubled over the last ten years, he added, a rate significantly exacerbated by repeated alcohol bans. 

Ntimane argued the people set to benefit the most from “aggressive excise tax” increases on alcohol are those in the illicit trade. 

Illegal alcohol is on average 43% cheaper than legal products. 

He quoted a Euromonitor report that government collected “at least R11.3 billion less” taxes due to tax leakages from the illicit trade. 

“These may seem like abstract figures, but the pain is felt by people who have lost their jobs in the legal alcohol value chain, businesses that are unable to compete with illicit traders, and local suppliers of inputs who are losing out to unregulated products which are either smuggled across our borders or made with an assortment of cheap, sometimes lethal ingredients.”

Ntimane has called on Godongwana to protect the legal alcohol value chain by avoiding another increase in excise tax.

“Our economy will not grow, and we will not create jobs, if we make it so much more attractive to join the illicit economy than it is to trade legally.”

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Compiled by Nica Richards.