“South Africa’s Alcohol Tax Proposal Draws Warnings on Illicit Trade”
Vinetur reports:
“Not everyone at the workshop agreed that excise increases would significantly worsen the problem. Prof. Charles Parry, chief specialist scientist at the South African Medical Research Council, said illicit alcohol is a real issue but a smaller policy risk than some industry groups suggest.
“Parry said alcohol tax receipts have risen in recent years, which in his view weakens the argument that illicit trade is accelerating at a pace that should deter public health policy.”
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Other Articles on the Same Topic
- Treasury Proposes Higher Taxes on Alcohol Industry (SABC News)
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Assessment
The virtual workshop, chaired by Mpho Legote, the Treasury’s director for VAT, excise duties and subnational taxes, is part of the consultation on the Treasury’s proposal to tax beer and wine by alcohol content – a design that increases the price of alcohol products and incentivises alcohol producers to lower the alcohol content in their products. Mr Legote said more people asked to make submissions than the session could take.
The Southern African Alcohol Policy Alliance in South Africa (SAAPA SA) told SABC News it strongly supports the excise reforms. The alliance has campaigned for alcohol policy action in national media throughout the review, and a civil society alliance challenged this year’s budget for failing to use alcohol taxation to prevent and reduce alcohol harm.
The alcohol industry side of the workshop brought in the global lobby network behind the usual illicit trade narrative. And this time around, they brought reinforcements. Paco Soltero of the World Spirits Alliance (WSA) claimed illicit alcohol is “deeply rooted in many markets” and that “Sub-Saharan Africa has the highest share of illicit trade of any region”. The liquor industry lobby group is Geneva-based and its members include some of the biggest alcohol industry giants, such as Diageo, Pernod Ricard, Bacardi, Suntory Global Spirits, Brown-Forman and Campari. Along with WSA also the South African Liquor Brandowners Association participated in the meeting. Jeff Hardy of the Transnational Alliance to Combat Illicit Trade claimed households tend to switch to illicit products when legal alcohol becomes more expensive. Ilse Fieldgate, senior economist at Econometrix, put the illicit market at R25.1 billion.
Econometrix is an economic consultancy firm reusing the Euromonitor estimate that the alcohol industry paid for and is pushing aggressively in the South African debate.
Movendi International previously reported on how the Drinks Federation of South Africa is working to place that commissioned study at the centre of national policy. This alcohol industry lobby group represent SAB, the local arm of beer giant AB InBev, Heineken Beverages, Diageo and Pernod Ricard.
But University of Cape Town researchers exposed that the government’s revenue data contradict the Big Alcohol claim of a rapidly growing illicit market.
Prof. Charles Parry, chief specialist scientist at the South African Medical Research Council, made that same case at the workshop. He noted that alcohol tax receipts have risen in recent years, contrasted alcohol with tobacco – where illicit trade has been a far more central problem – and explained that illicit alcohol is manageable with consistent oversight and proper enforcement tools. Anand Khelawon of the South African Revenue Service described the agency’s expanding use of data and track-and-trace technology against illicit trade.
The WHO technical manual on alcohol tax policy and administration addresses this alcohol industry claim directly: price and tax are not key determinants of unrecorded alcohol trade.
Unrecorded alcohol (or illicit trade) is more often the result of inadequate governance or limited tax administration capacity, and the appropriate response is a comprehensive strategy of governance and enforcement rather than lower taxes. The WHO manual also notes that the alcohol industry has an incentive to overstate the level of illicit trade in order to contest alcohol tax increases.
This is exactly what is happening in South Africa.
The following day, releasing the national crime statistics, Acting Police Minister Firoz Cachalia named alcohol as a major driver of violence in South Africa, concentrated on weekends, at night, in and around liquor outlets.
Alcohol taxation is one of the key policy solutions that act on exactly that harm.
Under the proposal now on the table, beer would be taxed in three bands by alcohol content – 0.5% to 2.5%, 2.5% to 9%, and 9% to 15% – with the middle band, which covers most beer sold in the country, taxed at 1.2 times the current rate. The Treasury is also weighing a minimum unit price. At the oral hearings in June, SAAPA SA asked the Treasury to narrow that middle band and add a tier between 3.5% and 6% alcohol – the range most beer sold in South Africa falls into – so that producers have an immediate reason to reformulate, and argued for minimum unit pricing alongside the excise tax reform.
Researchers at UCT’s Research Unit on the Economics of Excisable Products modelled the Treasury’s design and found it would reduce absolute alcohol use by 1.9%, because almost no beer sold in South Africa reaches 9% alcohol. Most beer sold is in the alcohol content range between 4% and 6%. Their alternative adds tiers at 2.5% to 3.5%, 3.5% to 4.5% and above 4.5%, with the tax rising at each step.
If producers reformulate in response, the modelling puts the reduction in alcohol use at 15.7%, while government revenue still increases.
The same unit set out the methodological problems with the alcohol industry’s illicit-trade claims in a critique titled Industry-commissioned and compromised.
The review opened with a discussion document in November 2024, oral hearings followed in June, and Mr Legote said the Treasury will keep engaging stakeholders as it decides. The 2026 budget went the alcohol industry’s way after a sustained lobbying campaign, and alcohol excise rates are usually set in the annual budget each February.