SAB Raises Alarm Over Excessive Excise Tax Impact on South African Beer Industry and Economy

In a move to preserve the significant contribution of the beer industry to the South African economy, South African Breweries (SAB) has sounded the alarm over the current excise tax, which they argue poses a real threat to the sector. The looming peril comes in the weighty form of a 25% tax levy on beer – a figure that overshadows the stipulated excise duty guideline by a staggering two percentage points.

The findings from a report by Oxford Economics Africa, commissioned by SAB, suggest that the government's current mode of taxation on beer overshoots the country's policy by charging excise duties that significantly exceed recommended levels, effectively placing the industry's sustainability in jeopardy. With beer contributing an overwhelming 34.7% to the nation's total excise revenue for 2023-24, it's clear that its fiscal impact cannot be overlooked.

Richard Rivett-Carnac, SAB CEO, has voiced the necessity for policy certainty regarding excise taxes, recognizing the strain the government faces from a budgetary standpoint. The continuous rise in excise taxes, outpacing inflation annually for the past decade, undermines the industry's critical role in job creation and economic growth in South Africa.

Amidst the above-inflation “sin tax” increases announced in the 2024 budget, the Treasury aims to collect a substantial R15 billion in the forthcoming fiscal year. This includes an anticipated R800 million from heightened excise duty, further straining an industry that bolsters nearly 250,000 livelihoods and is fundamental to the local economy.

The pressure on the industry is compounded by a trend of declining beer consumption, attributed partly to heightened health awareness and a shift towards low-alcohol beverages. The resulting trajectory in beer sales is concerning, with Heineken's financial downturn – a loss impacting Remgro's earnings – exemplifying the brewing challenges.

Lucky Ntimane from the National Liquor Traders Council indicates that taverns, pivotal in beer sales, will suffer as rising prices deter customers. He articulates the sensitivity of beer pricing on demand, emphasizing the centrality of beer in tavern markets.

Economic responses to excise tax hikes align with the notion of the Laffer curve, as discussed by Sifiso Skenjana, Managing Director of ESG Analytics. This curve proposes that beyond a certain point, increased taxes deter consumption and revenue – potentially decimating the industry in focus.

Furthermore, there are health considerations. Higher beer excise duties might discourage beer consumption but unintentionally encourage the intake of stronger spirits, counteracting public health efforts.

The collective sentiment among industry experts, economists, and stakeholders is clear: A balanced approach to excise taxation is vital—a harmony of government revenue needs and the sustenance of an industry indispensable to South Africa's socio-economic fabric.