Government clarifies ‘alcohol and cigarette sales banned throughout lockdown’ tweet

Update: Government has clarified that a tweet sent out earlier on Wednesday incorrectly stated that the country’s ban on alcohol and cigarette sales would continue “throughout lockdown”. The position is that these sales are prohibited under the current level 3 regulations, and are subject to change.

Original story below:

The ban on the sale of alcohol and cigarettes will remain in place throughout South Africa’s lockdown period, the government has said.

“The purpose is to save lives and protect the health and well-being of our people,” it said through its social media channel on Twitter on Wednesday (22 July).

This is the first time that the government has provided an indication of how long the ban could last – although it has not officially been confirmed by a member of President Cyril Ramaphosa’s cabinet.

The president reinstated the ban on the sale, dispensing and distribution of liquor on 12 July.

The president said that the government was forced to reintroduce the ban as hospital beds were being taken up by alcohol-related trauma cases.

However, he said that this should be seen as a ‘suspension’ on the sale of alcohol ‘for a while’ to allow for the country’s healthcare systems to focus on the coronavirus pandemic.

“It is not a ban, it’s a suspension to allow our health system to be able to cope,” he said.

The government has said that there is a clear correlation between an increase in hospital trauma cases and the reintroduction of alcohol sales.

Cigarettes

The sale of tobacco products, including cigarettes, has been prohibited since the country first introduced a lockdown at the end of March.

The ban has been in place to protect the health of South Africans, according to submissions from government, and cigarette producers have failed to convince the country’s courts that the sale of tobacco products is a necessity.

Speaking through a virtual Presidential Imbizo on the coronavirus on 15 July, Ramaphosa said that it is a ‘complex problem’ that government based on scientific advice.

However, similar to his comments on alcohol, Ramaphosa said that this is not a ‘ban’ but rather a suspension that will be ‘resolved’ as the country moves to a lower alert level.

Recent research by the University of Cape Town’s Research Unit on the Economics of Excisable Products (REEP)  shows that the ban may ultimately backfire.

The REEP said that current regulations have opened up loopholes for illicit products to be distributed in South Africa, and have created an environment that will likely encourage smoking once the ban has been lifted.

Being able to produce cigarettes legally for the export market, but not able to sell cigarettes in South Africa, has created a loophole and an incentive to sell illegally in the very lucrative local market, the REEP said.

“Manufacturers will find it difficult to resist this temptation, especially because so many companies are selling cigarettes, despite the sales ban. Given the tobacco industry’s long record of involvement in illicit trade, it is likely that they will divert cigarettes, ostensibly destined for the export market, to the local market,” it said.

Jobs lost

South Africa’s alcohol industry bodies have said that the government’s decision to halt sales, dispensing, and distribution of alcohol, will lead to job losses.

The South African alcohol industry including the National Liquor Traders Council, South African Liquor Brand owners Association (SALBA), the Beer Association of South Africa (BASA), Vinpro, the Liquor Traders Association of South Africa (LTASA) and manufacturers said in a joint statement that the liquor industry has a wide and deep value chain employing almost one million people across the country.

“The government’s decision has serious economic consequences, placing hundreds of thousands of livelihoods at risk.

“The hardest hit will be the significant number of smaller retailers and taverners. The immediate enforcement of the ban will have other unintended consequences which includes further job losses throughout the value chain,” the statement read.

It said that during the 9-week lockdown, the alcohol industry lost R18 billion in revenue and R3.4 billion in excise tax (excise tax is lost from the growth in the sale of illegal alcohol products which don’t pay taxes.)

Tax money lost

Speaking to 702 on Wednesday (22 July), SARS commissioner Edward Kieswetter said that the decision to ban alcohol and cigarettes has had a material impact on tax collection.

While he said he couldn’t go into detail around the valuation of the prohibition, SARS has seen a 51% decrease in excise collections in the current financial year, the equivalent of some R18 billion.

Of this, cigarette and alcohol sales make up a significant portion, he said. The bigger problem, Kieswetter said, were the implications further down the line.

If sales come to a complete stop over a longer period, the industry will face more job losses and the closure of smaller businesses and farms.

The ban on the sale of alcohol and tobacco could be driving South Africa into an even deeper economic hole, said Bernard Sacks, tax partner at financial services company, Mazars.

“One cannot ignore the effect that these drawn-out product bans are having on tax collections,” he said.

Looking at the ongoing ban on cigarettes, Sacks said: “According to my estimate, Treasury is probably losing out on around R320 million in uncollected VAT per month. In total, SARS is, therefore, losing in the region of R1.5 billion per month.

“Again, this is not even the complete picture since the loss is even greater when you include factors such as the uncollected fuel levies, manufacturers’ and supporting businesses’ corporate profits, and personal income taxes that this industry normally generates.”

“We are looking at about R13 billion to R15 billion if this continues until the end of the year,” said Sacks.

The tax expert noted that the revenue that Treasury will lose as a result of the reinstated alcohol ban will be even greater.

“In the 2019/20 financial year, SARS collected around R47 billion in excise duties from primarily alcohol and cigarettes.

“The collections for this year were initially projected to be R48 billion. If one factors in a total ban on alcohol sales alongside the cigarette ban, the R1.5 billion monthly loss in taxes could be tripled.

“If both of these bans are upheld until the end of the year, we are looking at total losses upward of R30 billion. Once again, that figure is solely a calculation of lost excise duties and VAT – it does not take other lost taxes into account. This shows us just how hard these product bans are hitting the country on a fiscal level,” Sacks said.


Read: The knock-on impact of South Africa’s alcohol ban – and how it could be challenged in court

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Government clarifies ‘alcohol and cigarette sales banned throughout lockdown’ tweet