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Wednesday, December 4, 2024

Treasury proposes tax increases on alcohol to curb abuse

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The South African government is set to reform alcohol taxation in a bid to curb excessive drinking and address public health challenges linked to alcohol abuse.

 

With heavy episodic drinking reported among 59% of local consumers, the National Treasury aims to strike a balance between reducing harm and maintaining the economic contributions of the industry.

 

Alcohol abuse contributes to over 3.3 million deaths globally each year and is a leading factor in more than 200 diseases, including liver cirrhosis, cancer, and road traffic injuries.

 

ALSO READ: How to reduce harm caused by alcohol

 

In South Africa, harmful drinking accounted for 3,466 deaths from liver cirrhosis, 3,614 from road injuries, and 2,673 from cancers in 2016 alone.

 

Alarmingly, about 7% of the population suffers from alcohol use disorders, which include dependence and harmful consumption patterns.

 

The country also has one of the highest per capita consumption rates globally, with the average adult consuming 9.3 litres of pure alcohol annually—significantly above the African regional average of 6.3 litres.

 

While 69% of South Africans abstain from alcohol entirely, those who drink tend to do so heavily, consuming an estimated 29.9 litres of pure alcohol per year per drinker.

 

This far exceeds the global average of 15.1 litres for drinkers and highlights a worrying trend of binge drinking.

 

READ: Alcohol consumption and your brain

 

The Treasury’s proposed reforms include raising taxes and introducing targeted measures to discourage harmful consumption.

 

Specific proposals include increasing the tax incidence rates to 16% for wine, 28% for beer, and 42% for spirits. Additionally, the government is considering tying annual tax adjustments to inflation, with a maximum increase of up to 10% above inflation.

 

These changes aim to reduce the affordability of high-alcohol products while ensuring taxes keep pace with economic conditions.

 

A key shift under discussion is taxing alcohol based on its ethanol content rather than volume, making higher-alcohol beverages more expensive.

 

A tiered system could be introduced for wine, with lower taxes for low-alcohol products (0.5–4.5%) and higher rates for stronger options (up to 16.5%).

 

Similar bands are proposed for beer and other fermented drinks, rewarding lower-alcohol options with reduced tax rates.

 

The guideline excise tax incidence could be raised by:

 

  • 5 percentage points for wine and beer (to 16% and 28%, respectively).
  • 6 percentage points for spirits (to 42%).

 

Targeted Band Adjustments:

 

  • Instead of uniform percentage increases, the government suggests a flexible framework where excise duties are adjusted within a band tied to inflation.
  • For example, excise duty adjustments could range from inflation (as a minimum) to a maximum of 10% above inflation.

 

Tax Based on Alcohol Content:

 

  • A shift from taxing alcohol on a volumetric basis to taxing based on absolute alcohol content is proposed.
  • This would align taxation with the ethanol content in beverages, discouraging the production and consumption of high-alcohol, low-cost products.

Wine-Specific Adjustments:

 

  1. A proposed three-band system for wine based on alcohol content:
  • 0.5–4.5% alcohol: Lower excise duty.
  • 4.5–9% alcohol: Medium excise duty (e.g., 1.4 times the current rate).
  • 9–16.5% alcohol: Higher excise duty (e.g., 1.8 times the current rate).

 

Beer and Other Fermented Beverages:

 

  1. Introduction of new bands for low-alcohol beer and fermented beverages:
  • 0.5–2.5% alcohol: Lowest rate.
  • 2.5–9% alcohol: Medium rate (e.g., 1.2 times the current rate).
  • 9–15% alcohol: Highest rate (e.g., 1.4 times the current rate).

 

The Treasury also supports a minimum unit pricing policy to complement these tax changes, ensuring no alcohol is sold below a set price.

 

Combined with efforts to combat illicit alcohol trade, these measures aim to reduce alcohol-related harm while safeguarding government revenue.

 

For more information and to read the full discussion document, click HERE.

 

Public comments on the proposals can be submitted via email to 2024Alcoholreview@treasury.gov.za by December 13, 2024.

 

Final policy decisions will be announced in the 2025 Budget.

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