The hidden cost of South Africa’s coronavirus bans

While the business impact of South Africa’s ban on alcohol and tobacco sales has been well documented, there is increasing evidence that the prohibitions are causing significant damage to South Africa’s fiscus.

In a research note on Monday (3 August), the Bureau for Economic Research noted that the lockdown resulted in an under-recovery, relative to earlier expectations, of tax revenue of about R82 billion for the 2020/21 fiscal year up to 15 July.

“Excise duty collection, which includes levies on alcohol, tobacco products and fuel, fell by 42% year-on-year in the three months up to June,” it said citing SARS data.

“However, value-added tax (VAT), personal income and other taxes were also significantly lower. In all, Treasury data showed that total gross tax revenue was down by 23.6% year-on-year between April and June 2020.”

Bloomberg calculated that South Africa lost more in tax revenue in the first three-and-half months of its fiscal year than it borrowed from the International Monetary Fund and the African Development Bank combined.

To help the battered economy and fight the pandemic, South Africa has borrowed R70.6 billion ($4.3 billion) from the IMF, R5 billion rand ($294 million) from the AfDB and $1 billion (R17 billion) from the New Development Bank.

In February, the government left taxes unchanged due to ‘weakness in the economy’ and opted to broaden the tax base, the Treasury said at the time. It has since said an additional R40 billion in taxes needs to be raised over the next four years.

Billions lost

Distell chief executive officer Richard Rushton says that the tax loss from the first six-week ban on alcohol sales alone came to R15.4 billion, and if the current ban remains in place for nine weeks, an additional R13 billion will be lost to the fiscus.

“We have to ask whether an outright ban on alcohol sales can be justified when the damage outweighs the benefits and there are smarter ways to achieve the same objectives,” he said.

“The alcohol industry has already lost 118,000 jobs and projections show that a nine-week ban now will cost another 84,000 livelihoods and R15.5 billion in GDP.

“The long-term damage will be immense – wine farms, restaurants, glass container manufacturers and taverners are all bleeding and many will not survive.”

Rushton added that the alcohol industry is facing a structural decline in output capacity but still supports almost a million livelihoods and accounted for 3% of SA’s GDP in 2019.

“I fear the impact this will have on the prospects of an economic recovery for South Africa, but more importantly, the ability of people who lose their jobs to feed their families.”

He added that industry estimates show the country is losing R206 million in taxes every day that the alcohol ban continues – the equivalent of 1,000 teacher salaries for a whole year.

“We understand the government’s duty to ensure there are enough hospital beds to meet the expected need during the peak of the pandemic,” said Rushton.

“But the economic consequences of a ban are likely to cause more suffering down the line, in terms of hunger and hardship, than it can possibly prevent now.”


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The hidden cost of South Africa’s coronavirus bans