Alcohol, vape and smoking tax hikes on the cards for South Africa

South Africans may soon have to spend more on their favourite vices, with the government likely increasing excise duties – also known as ‘sin taxes’.

In its outlook for the 2024 Budget, which will be delivered by Finance Minister Enoch Godongwana next week, PwC said that SARS and the South African Police Service’s joint efforts have resulted in the confiscation of illicit goods.

However, illicit trade, especially in cigarettes, remains a massive challenge in the country.

According to the Transnational Alliance to Combat Illicit Trade (TRACIT) Organised Crime, Corruption, and Illicit Trade: Spotlight on South Africa report by Business Unity South Africa (BUSA), South Africa could have incurred tax losses of nearly R100 billion per year.

The report said that a primary reason for the rampant trade of illicit goods was the Covid-19 pandemic.

“The pandemic provided wide opportunities for illicit traders to significantly expand their operations as government lockdowns, bans, and other restrictions disrupted markets and created shortages,” the report said.

With this in mind, PwC said that it hopes that the budget proposes new measures to address illicit trade, the government ratifies the World Health Organisation’s protocol to eliminate illicit trade in Tobacco Products in 2024, and the government will develop a practical track-and-trace system.

Reality

The group expects a simple increase in its excise duties for alcoholic beverages and tobacco.

The government’s guidelines to direct its excise duty policy is 11% for wine, 23% for beer, and 36% for spirits of the weighted retail prices and 40% for the price of the most popular tobacco brand.

“Budget 2021 announced a review of the policy framework for alcohol and tobacco (this was restated in subsequent budgets), and following the higher than-inflation increases in previous years, Budget 2023 announced a general increase in the excise duty on alcohol and tobacco in line with expected inflation,” PwC said.

“The expectation is that an inflationary increase to excise duties will once again be announced in Budget 2024 and pending the finalisation of the policy reviews, which are yet to be published.”

Tax increases are also on the cards for vaping products.

In 2022, the government introduced a flat excise duty for nicotine and non-nicotine vaping products of R2.90/ml, effective from 1 June 2023.

PwC said that it expects an inflationary increase to this duty.

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