Beverage tax ‘to fight alcohol abuse’

BY LINDA ENSOR, 06 MAY 2014, 08:48

A MAJOR review of the taxation of alcoholic beverages being undertaken by the Treasury as a contribution to the government’s fight against alcohol abuse is likely to result in higher taxes and prices.

The industry, faced with a deluge of regulatory proposals, is likely to resist the Treasury’s suggestions as it believes it is already overtaxed.

It is also having to fight off a proposed ban on liquor advertising, which Health Minister Aaron Motsoaledi is pushing for, as well as restricted trading hours.

Tougher law enforcement and stiffer penalties for drinking and driving have also been introduced.

The Treasury believes alcohol abuse in South Africa is “unacceptably high” and has to be reduced as “an urgent national priority for government”, not only because of its social consequences but also because it places too heavy a burden on the fiscus and on non-drinking taxpayers.

But it cautioned in a discussion document released on Monday that tax increases could not be so high that they drive heavy drinkers to illicit or more harmful alcohol.

In nominal terms, excise rates increased between 2002-03 and 2013-14 by 149% for beer, 233% for wine and 234% for spirits.

The inflation rate increased by a cumulative 62% over the same period. In 2012-13, the duties generated about R14bn for the fiscus.

Currently, the total tax (excise duties plus value-added tax — VAT) on beer, wine and spirits as a percentage of their weighted average retail selling prices is set at 23%, 35%, and 48% respectively.

The Treasury argued in its discussion paper that some of the social costs of alcohol abuse needed to be included in the price of the product. However, it was not sure whether the current system of excise duty was the correct mechanism for this.

It noted that the external costs that were associated with alcohol abuse were borne by the broader society due to the inability of liquor markets to adequately internalise — and price — for them.

In 2009-10 the national government allocated more than R10bn and provincial governments about R7bn to deal with the direct consequences of alcohol abuse, reduce the extent of such abuse and address its negative social impact.

After the revenue from excise duties on alcoholic beverages, VAT collected on alcohol sales and provincial liquor licences, net alcohol-related expenditure of about R890m had to be funded by the fiscus.

This did not take into account the expenditure incurred by municipalities, and the tangible and intangible costs of alcohol abuse for society, which have been estimated to be as high as R38bn and R243bn respectively in 2009.

“If excise taxation were to fully internalise the external costs of alcohol abuse, excise duties on alcoholic beverages would need to increase significantly,” the Treasury’s discussion document said. “However, higher excise rates may exacerbate social problems arising from excessive alcohol consumption as heavy drinkers turn to cheaper, or illicit, alcoholic beverages.”

The public has been given until June 30 to comment.


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