The Beer Association of South Africa (Basa) presented its rejection of excise tax increases above the inflation rate to the Parliament’s Standing Finance Committee on Tuesday. This is the first of a series of agreements that Basa plans to enter into with the government ahead of next year’s budget speech.
Its filing during the public hearings on the 2021 tax bill focused on the negative impact of a surge above inflation on the beer industry, already devastated by the Covid-19 lockdown and the four alcohol bans enforced during the past year 17 months.
The more than 200 craft breweries are particularly hard hit by the bans, 30% had to close their doors permanently. Basa also advocated that products with a low alcohol volume (ABV) such as beer should not be taxed in the same way as other alcoholic products with a higher alcohol content.
Differentiate between low and high alcohol beverages
One of the main functions of excise taxes is to prevent the consumption of harmful products. Basa has therefore argued in its statement that a distinction must be made between beer as an alcoholic beverage with a low alcohol content of 2.8 to 6% alcohol and other alcoholic beverages with a higher alcohol content. The beer industry has also shown an intention to further reduce the alcohol content in their products through the introduction of non-alcoholic and low-alcohol beers, Basa said.
The association pointed out that it was common practice in many other countries to regulate alcoholic beverages according to type and strength of alcohol. “For example, spirits are taxed higher than beer in terms of excise duty per liter of pure alcohol in many OECD countries, including Australia, Canada, Denmark, Finland, France, Iceland, Ireland, Israel, Mexico, Netherlands, New Zealand, Norway, Portugal , Spain, Sweden, Switzerland and the United Kingdom, “it said.
Regarding excise taxes as a source of income for the state, Basa also emphasized that the excise tax increases in the last five years have been well above the rate of inflation compared to last year – a cumulative deviation of 17.23% – which goes against the government’s own excise tax guidelines .
This has had a negative impact on investor sentiment, Basa said, as Heineken South Africa plans to invest $ 6 billion.
These rises above inflation are ultimately also absorbed by the consumer. “As a result, citizens who find legal products too expensive are buying cheaper illegal products that are not only harmful to their health but also to the tax authorities. The illegal market already accounts for 22% of all alcohol sales and has been boosted by the four alcohol bans since the lockdown began last March, resulting in a $ 11.3 billion tax loss.
SMBs left in the lurch
The beer industry also includes over 200 smaller craft brewers who have not received government funding, despite having been shut down for 161 days since March last year. Current tax legislation does not adequately recognize or exempt small medium-sized and micro enterprises (SMEs) from excise duties in order to encourage growth and job creation in the sector.
Basa believes that craft brewers should be given some excise tax relief. Larger companies in the industry should also receive tax breaks to encourage and develop the craft brewing sector as an important job creator, it said.
In order to ensure the long-term survival of the beer industry, which secures over 450,000 livelihoods, Basa is calling on the government to consider either maintaining the current consumption tax rate or increasing it under inflationary terms in the budget speech next year.
Basa said it would write to Treasury Secretary Enoch Godongwana to request a meeting to discuss the negative impact of excise duties and new tax rules that recognize low-alcohol products and fuel the growth of SMEs like craft brewers.