Even when presenting the grimmest of budget statements, successive ministers of finance have all found a moment of light-heartedness when they announce increases in alcohol excise tax, which the National Treasury argued in Business Times last week were intended to “curb drinking, not increase revenues”.
Last year, the budget statement followed the tradition established by former finance minister Trevor Manuel in announcing what he termed “sin taxes”. The budget statement presented a muted GDP growth forecast of 1.4% for South Africa and projected inflation of 4.7%, but all categories of alcohol received an above-inflation increase of 6.7%.
“This means a can of beer increases by 14 cents ... A bottle of wine will cost an extra 28 cents ... and a bottle of spirits, including whisky, gin or vodka, increases by R5.53,” the statement said to light applause and sometimes laughter from almost all political party benches when it was presented in parliament.
It would in fact be a light-hearted moment if these above-inflation tax increases were not targeted at an industry that contributes R226.3bn to GDP and generates R482.7bn in economic output through its extensive value chain. The alcohol industry also generates R96.9bn in tax revenue for the government, which accounts for 6.7% of total tax income. The industry supports nearly 500,000 jobs, which in effect means a positive economic impact on 1.15-million South Africans.
Why is alcohol taxed in the first place? Excise taxes are applied across the world to compensate for externality costs that arise from the inappropriate use of alcohol or alcohol-related harm.
Like all other administrative actions, excise tax administration must be fair, just and predictable. In other words, it should be equitable, impartial and reasonably address the problem it seeks to resolve.
The large tax increases on spirits over many years have directly facilitated the exponential growth of illicit trade, which now stands at 18% of the spirit category
The Treasury acknowledged in its 2024 alcohol tax policy review document that the spirits segment is disproportionately taxed compared to other categories of alcoholic beverages. At R94.46 per standard 750ml bottle of spirits, excise tax is the most significant component of the price that consumers pay when buying a spirits product. On average, a 750ml bottle of a category-leading vodka and gin brand retails at about R170. At least 56% of that retail price is collected by the government as an alcohol tax.
Tax-evading illicit traders turn this tax burden to the benefit of their own criminal enterprises, offering smuggled and counterfeited products at less than 50% of market prices. The large tax increases on spirits over many years have directly facilitated the exponential growth of illicit trade, which now stands at 18% of the spirit category. Illicit trade in spirits causes an R11bn loss in tax revenue to the government every year, according to a 2025 Euromonitor study.
Concerning the fairness and predictability of the tax system, a number of other issues should also be considered. The current tax rates are above the tax incidence targets that were set by the Treasury in 2024 for all categories — spirits, beer and wine. This makes it very difficult for the industry to predict adjustments, which means the certainty needed for medium- to long-term business and investment decisions is absent.
Furthermore, unlike an increase in VAT or fuel levies, which becomes applicable on a set date after the budget speech (usually April 1), alcohol excise tax becomes effective immediately on the day of the announcement. This literally means that every alcohol company has a team on standby to take pricing decisions and then immediately effect changes in that ordering/payment system to reflect the newly announced rates.
Certainly, the consultation processes are demonstrating willingness to address this administrative issue. Also encouraging for our sector is the acknowledgement by finance minister Enoch Godongwana in the medium-term budget statement in November that “South Africa faces a problem of illicit trade that threatens our economy, endangers consumers and robs the fiscus of billions in revenue”.
We have openly expressed our commitment to work with the Treasury, the South African Revenue Service and other relevant agencies to address the problem of illicit alcohol before it gets completely out of control. Illicit trade harms the reputation of legitimate brands, leads to business and tax losses and, most importantly, can be harmful to the health of those who consume counterfeit products. It is therefore in the best interests of the government, the alcohol industry and everyone concerned about crime in the country to work together to stop the illicit trade in alcohol.
We have therefore called for a freeze in further increases for spirits in the 2026 budget while the overall alcohol tax policy is being reviewed to improve equitable application and prevent further growth opportunities for illicit traders.
Through individual company projects and the collective industry initiative called Aware.org, the alcohol sector is committed to continued investment and collaboration with partners in programmes to promote responsible drinking among consenting adults and prevent underage drinking.
• Mngadi is corporate relations director at Diageo South Africa
Business Day
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