Counting the cost of South Africa’s alcohol and cigarette sales ban

 ·14 Aug 2020

The continue prohibition on alcohol and cigarette sales has come at a hefty cost to South Africa’s fiscus, says SARS commissioner Edward Kieswetter.

Kieswetter told CNBC Africa that the country was already facing a shortfall as a result of the nationwide coronavirus lockdown.

He said that employment taxes are down by R14.5 billion (around 9%), while corporate income tax is down R16 billion (28%).

Other notable figures include:

  • Tax from alcohol was down by R7 billion;
  • Tax from cigarettes was down by R3 billion;
  • VAT was down R14.5 billion;
  • Customs duty was down by R16.7 billion,

“If you then add the downstream taxes from those companies you will also add the loss in corporate income tax and employment taxes that gets you to a shortfall of R15 billion,” said Kieswetter.

Costly alcohol ban

This week, wine body Vinpro said the initial nine-week ban on local sales, and five-week ban on exports will result in more than 80 wineries and 350 wine grape producers going out of business, with a potential loss of more than 21,000 jobs across the value-chain over the next 18 months which may escalate significantly following the second ban.

“Many wine businesses have already closed down due to the previous and current trade restrictions, and the rest of the industry will simply not survive a continued alcohol ban, leaving tens of thousands of employees without any income, possibilities or hope,” said Vinpro managing director Rico Basson.

Other industry players have warned of the significant cost of the ban – including plans to withhold investments from the country.

  • South African Breweries (SAB) says it has halted plans to spend R5 billion on scheduled plant upgrades, while glass manufacturer Consol said it’s also suspending building a R1.5 billion-rand production plant in the country;
  • Heineken also confirmed it’s stopped work on a R6 billion brewery;
  • Distell said said it would defer R300 million in South Africa capex which was meant to be spent on various domestic projects.

There are also concerns that the ban may have a more far-reaching impact on the liquor industry. Industry body SpiritsEUROPE has raised concerns that South Africa’s alcohol sale ban violates existing trade agreements.

“The ban rips away all the benefits from the Economic Partnership Agreement between the EU and South Africa at a time when we should actually find ways to deepen our trading relations to support each other’s recovery processes,” Ulrich Adam, director general of spiritsEUROPE, said.

“Banning sales also means banning imports of European spirits – while South Africa continues to export particularly wine which has 110 million litre quota duty-free export into EU under the EPA, contributing to R5.7 billion in net exports earnings for South Africa on alcohol.

“Our member companies operating in South Africa are deeply concerned about the uncertainty of current trading conditions.

“The lack of clarity on whether and when the ban might be lifted makes business planning impossible. We therefore need a clear and reliable timeline.”

Read: Liquor companies in talks with government over lifting of South Africa’s alcohol ban

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