South Africa: Beer industry calls for considering different beer taxes to wine ahead of Medium-Term Budget Policy Statement

A war of the malt is brewing ahead of the Medium-Term Budget Policy Statement (MTPS) next month after South Africa’s beer industry has called on Finance Minister Enoch Godongwana to consider taxing beer differently to wine in line with inflation-based excise duty increases, IOL reported on September 14.

This as the beer industry earlier this week said it would take another two years to recover from the economic hangover of the Covid-19 pandemic, which did immense damage in terms of sales, jobs and growth.

The Beer Association of South Africa (Basa), in its submission and presentation on the 2022 Draft Tax Bills to the Standing Committee on Finance (SCoF) in Parliament, also called for South African policy commitment on September 13 to a three-year inflation-based increase strategy.

Basa’s membership includes: The Craft Brewers Association of South Africa, Heineken South Africa and South African Breweries.

Basa explained that beer was taxed at an excise duty based on the litres of absolute alcohol (LAA) or alcohol by volume (ABV), while wine is taxed at a rate based on litres irrespective of the ABV, which makes the excise duty liability for wine to remain at R4.96 irrespective of the ABV.

ABV ranges between 4.5 percent and 14 percent. The excise duty liability for beer is based on the ABV, calculated at a rate of R121.41 per LAA.

“This disadvantage becomes apparent on beer products above 4.5 percent ABV, with the highest prejudice experienced by the craft beer sector, where beer ABV is generally around 7 percent. Beer is taxed R3.54 more than wine with the same ABV,” it said.

“Another increase in the excise duty rate on beer above the inflation rate, as has been experienced in the past, is neither beneficial to the government nor to industry; let alone the compounding effect on the consumer.

“In addition, the deviation by the government from its own fiscal policy is counter-productive to economic recovery as it decimates investor confidence,“ Basa said.

Basa drew the attention of the SCoF to the continuing plight of the sector as presented to National Treasury and the SA Revenue Service on the sustainability of the historic relative disadvantaged position beer was subjected to both in relation to the inconsistent application of an ABV excise duty rate and inconsistent excise duty payment terms.

Basa also called out the government on how the wine industry had been preferential treatment with a reduced excise adjustment rate versus the beer industry.

“The beer industry advocates for the disjuncture between the excise policy framework and its implementation to be minimised,” Basa said.

It said the relative year-on-year increases in excised duty rates over the past six years had incrementally widened the gap between the excise duty rate and the relative annual inflation rate.

“Ultimately the burden of above inflation increases is not on the producers but ultimately on the consumers based on the elasticity of the industry,” Basa said.

The presentation comes hot on the heels of Basa earlier this week releasing a study, which showed that beer makes a value-added contribution to gross domestic product (GDP) of R71 billion in 2019, or 1.3 percent of GDP and that 249 000, or about one job in 66, were supported by the industry in one form or another. The sector also contributed some R43bn in taxes to the government in 2019.

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