Warning over South Africa’s beer economy and tax hikes

The Beer Association of South Africa (BASA) on Wednesday (14 September) submitted a presentation on the 2022 Draft Tax Bills to the Standing Committee on Finance in Parliament, arguing that beer is unfairly taxed given its lower alcohol content when measured against other alcohol types.

BASA’s submission focuses on the current and historic factors that have contributed to a disparity in the application of excise duties within the alcohol industry, which have disadvantaged the beer industry in particular.

The beer sector has a significant economic impact on the whole South African economy while creating hundreds of thousands of jobs, according to the recently published Oxford Economics Study (2022) on the Economic Impact of the Beer Sector in South Africa.

“There are 249,000 jobs overall that are associated with beer-related economic activity, or 1 in every 66 jobs nationwide. The beer industry contributed R 71 billion in gross value added (GVA) to South Africa’s Gross Domestic Product (GDP) – or R1 for every R79 of the country’s GDP is attributable to beer-related economic activity,” said Patricia Pillay, CEO of Beer Association of South Africa.

This means the beer industry made up roughly 1.3% of the country’s GDP.

The South African beer sector spent R33 billion with local businesses on products and services. Payments of R7.6 billion went to providers of business services such as accountants, engineers, marketers, and lawyers, followed by producers of mineral products for cans and bottles (R6.7 billion), and then transportation and storage companies (R6.7 billion).

According to the Oxford Economics Study, beer supported 107,000 jobs, R6.6 billion in tax income, and R27 billion in GVA contributions to South Africa’s GDP through local procurement alone.

The restaurants, bars, pubs, clubs, sports arenas, and other hospitality establishments that sell beer to consumers make up the downstream value chain for beer. The downstream value chain of beer provided 68,000 jobs or 0.4% of all employment in South Africa.

The downstream value chain of the beer industry contributed to the raising of R31 billion in taxes or 2.3% of the total national tax, said Pillay.

The tax payments directly stimulated by the South African beer sector totaled R43 billion – of this, R26 billion is estimated to have come from value-added tax and excise duties from beer sales.​ #TaxForGrowth​ #StateOfTheBeerEconomy pic.twitter.com/2kaPg1XH8O

— SABreweries (@SABreweries) September 12, 2022

BASA is appealing to the government for a more uniform tax regime within the alcohol industry. It has proposed the following changes:

1. That beer and other alcoholic goods that have lower levels of alcohol by volume (ABV) are taxed proportionally lower than products with higher ABV;
2. That the excise duties period of 30/60 days on all goods under the Excisable Alcohol Products be applied uniformly.

Beer is taxed at an excise duty based on the litres of absolute alcohol (LAA) or ABV, while wine is taxed at a rate based on litres irrespective of the ABV, the group said. This means that the excise duty liability for wine remains at R4.96 irrespective of the ABV, which ranges between 4.5% and 14%

“In contrast, the excise duty liability for beer is based on the ABV calculated at a rate of R121.41 per LAA. This disadvantage becomes apparent on beer products above 4.5% ABV, with the highest prejudice experienced by the craft beer sector, where beer ABV is generally around 7%. Beer is taxed R3.54 more than wine with the same ABV,” said BASA.

Regarding the second proposal, while excise duties are currently intended to be a consumption tax, wine is also at a distinct advantage in light of excise duties.

“Beer is only due within an average 4.5 months prior to consumption, whereas the duties for wine are due within an average 36 months to actual consumption since wine is able to be consumed and often best consumed after considerable ageing. The same advantage is also enjoyed by most spirit products.”

BASA said that ultimately the burden of above-inflation increases is not on the producers but on the consumers, based on the elasticity of the industry.

“When excise duties are applied, the impact is narrowly viewed as having an effect on the specific manufacturer in the industry.

“However, as would be argued, the impact of excise duties reverberates throughout the value chain, from the farmer who grows the hops and barley to the suppliers to the industry, which are companies that provide packaging, equipment, and technicians, the transport industry, advertising agencies, to the bar, retailers, and restaurants,” Pillay said.

“Due consideration should be given to the consumer when considering excise duty increases, especially given the current economic climate and that another above inflation rate increase would have throughout the supply chain and ultimately the consumer.”

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