Big price changes for alcohol still on the cards for South Africa

Price changes to alcoholic drinks are still on the cards for South Africa, although the National Treasury has extended the period for comment on the proposed changes, which include a minimum price for alcoholic beverages.

The prospect of price increases for alcoholic beverages in South Africa has proven contentious, as the National Treasury has extended the public comment period for its proposed changes to alcohol taxation policies.

Initially set to close on 13 December 2024, the deadline for submissions has been pushed to February 14, 2025, following requests from various stakeholders.

These proposals, outlined in a discussion paper released on November 13, aim to reshape how alcohol is taxed and priced in the country.

At the heart of these proposals is the introduction of a minimum price for alcoholic beverages.

This strategy is part of a broader effort to address the affordability of alcohol, which the Treasury identifies as a key driver of consumption and, consequently, alcohol-related harm.

The policy builds on findings from a previous excise tax policy review conducted in 2014 and aims to implement changes that could take effect in 2025.

The proposed reforms not only include tax hikes but also explore a shift to a tax system based on alcohol content, among other measures.

Currently, South Africa employs an excise tax framework based on the weighted average retail price of alcoholic beverages.

The tax incidence for beer, wine, and spirits is set at 23%, 11%, and 36%, respectively.

However, annual adjustments to these rates have often outpaced inflation, creating discrepancies that have drawn criticism from industry stakeholders.

The Treasury has acknowledged concerns about these disparities, noting that the widening tax differentials across beverage categories could be distorting competition.

For instance, between 2012 and 2024, the excise duty gap between beer and spirits increased by 148%, while the gap between wine and spirits rose by 136%.

Another issue highlighted in the discussion paper is the lack of incentives for consumers to opt for lower-alcohol beverages.

Under the current system, a wine with an alcohol content of 0.5% is taxed at the same rate as one with 16.5%.

This uniform approach fails to align with harm-reduction goals, prompting the Treasury to propose tax bands based on alcohol content.

For instance, low-alcohol wines could remain at the current tax rate, while higher-alcohol wines might face excise duties up to 1.8 times the existing rate.

Alternatively, the government could adopt a more direct proportional tax system, where excise is strictly tied to alcohol content.

In addition to changes in excise duty structures, the Treasury has floated the idea of introducing a minimum unit pricing (MUP) mechanism for alcohol.

Unlike taxation, MUP sets a price floor below which alcoholic beverages cannot be sold.

This measure aims to curb the availability of cheap alcohol and prevent producers or retailers from offsetting tax increases by absorbing costs or offering significant discounts.

The World Health Organization has endorsed MUP as an effective tool to reduce alcohol-related harm, and the Treasury has expressed support for its implementation in principle.

However, the feasibility of this measure depends on further deliberations within the government.

The Treasury’s proposals are rooted in a desire to mitigate the social and economic costs associated with excessive alcohol consumption.

These costs include healthcare burdens, lost productivity, and broader societal harms.

By making alcoholic beverages less affordable through higher taxes and pricing policies, the government hopes to encourage more responsible drinking habits and reduce alcohol abuse.

Despite these intentions, the proposals have not gone unchallenged. Industry stakeholders have raised concerns about the potential impact on competition and the broader economic implications.

For example, increasing taxes on wine or implementing MUP could disproportionately affect smaller producers and low-income consumers.

Furthermore, critics argue that the focus on taxation may inadvertently boost the illicit alcohol trade, undermining public health objectives and government revenue collection.

The extended public comment period reflects the Treasury’s recognition of these complexities and its commitment to gathering diverse perspectives.

Stakeholders are encouraged to submit detailed feedback to help refine the proposed excise policy framework.

Following this consultation phase, the government will incorporate public input into revised proposals, which are expected to be announced in the 2025 Budget.

Submissions can be sent via email to [email protected], offering citizens, industry players, and advocacy groups the opportunity to influence the future of alcohol pricing and taxation in South Africa.

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