Prepare to pay more for alcohol and cigarettes in South Africa
The third version of the National Treasury’s 2025 Budget proposed raising “sin taxes” on alcohol and tobacco to boost revenue despite concerns that higher rates will fuel South Africa’s illicit trade and cost the government billions in lost taxes.
This was revealed in Finance Minister Enoch Godongwana’s 2025 Budget, which he presented on Wednesday, 21 May 2025.
In his speech, he confirmed that the controversial value-added tax (VAT) hike would not be implemented.
This came after the first two versions were rejected by Parliament and opposed by members of the Government of National Unity.
The May 2025 Budget proposed changes to specific excise duties, often known as “sin taxes”, particularly on alcohol and tobacco products.
The March 2025 Budget Review outlined tax proposals for 2025/26 and 2026/27, and these proposals, including those for excise duties, remain largely unchanged.
The May 2025 Budget proposes an above-inflation increase in excise duties on alcohol and tobacco. This measure is presented as a way to raise revenue, especially following the withdrawal of the controversial VAT rate increases.
This and other tax policy measures are expected to raise an additional R18 billion in 2025/26. A further R20 billion in tax measures will be proposed in the 2026 Budget.
Specific excise duties for 2025/26 were proposed on various products:
| Product | Change |
|---|---|
| Malt beer | Increase from R135.89 to R145.07 per litre of absolute alcohol (a 6.75% nominal change) |
| Traditional African beer | No change from 7.82 cents per litre |
| Traditional African beer powder | No change from 34.70 cents per kg |
| Wine | Increase from R5.27 to R5.63 per litre (a 6.75% nominal change) |
| Sparkling wine | Increase from R10.14 to R10.82 per litre (a 6.75% nominal change) |
| Other fermented beverages (like cider and alcoholic fruit beverages) | Increase from R1.81 to R1.93 per litre (a 6.75% nominal change) |
| Spirits | Increase from R73.67 to R78.65 per litre of absolute alcohol (a 6.75% nominal change) |
| Cigarettes | Increase from R21.77 to R22.81 per 20 cigarettes (a 4.75% nominal change) |
| Heated Tobacco Products (HTPs) sticks | Increase from R16.33 to R17.10 per 20 sticks (a 4.75% nominal change) |
| Cigarette tobacco | Increase from R24.47 to R25.63 per 50g (a 4.75% nominal change) |
| Pipe tobacco | Increase from R7.53 to R8.03 per 25g (a 6.75% nominal change) |
| Cigars | Increase from R125.91 to R134.40 per 23g (a 6.75% nominal change) |
| Electronic Nicotine and Non-Nicotine Delivery Systems (ENDS/ENNDS) | Increase from R3.04 to R3.18 per ml (a 4.75% nominal change) |
The total impact of these specific excise duties tax proposals on gross tax revenue is estimated at R1.3 billion in 2025/26, R1.37 billion in 2026/27, and R1.46 billion in 2027/28.
These proposed increases in specific excise duties on alcohol and tobacco are part of the government’s strategy to raise revenue in the revised fiscal framework.
Pushback
South Africa’s illicit trade industry is rife, with the government losing out on around R20 billion annually in tax revenue from the illegal cigarette and alcohol trades alone.
While the government has said that high taxes on these products are meant to protect users while boosting revenue, the alcohol and tobacco industries have pushed back against this.
Zinhle Tyikwe, the CEO of the Consumer Goods Council of South Africa (CGCSA), previously said that increasing sin taxes will only worsen the illicit trade problem.
“Proposing to increase the so-called sin taxes is both anti-growth and counterproductive and will simply encourage the already entrenched illicit trade,” Tyikwe said.
The illicit economy thrives on counterfeit and fake goods and is estimated to account for as much as 10% of the local economy.
Tyikwe said it is estimated that the South African Revenue Service (SARS) could lose over R8 billion annually from selling illicit cigarettes alone.
Regarding the alcohol sector, the illicit alcohol market alone is estimated to be worth R20.5 billion, 22% of the market share, resulting in a R11.3 billion annual loss to the fiscus.
According to Tyikwe, from 2002 to 2022, the government has lost R119 billion in excise and VAT revenue.
“With such an entrenched illicit market, whose growth was fuelled by Covid-19 restrictions on liquor and tobacco sales, an increase in taxes will drive consumption to the illicit market where the selling prices are unaffected,” she said.
If alcohol and tobacco become too expensive, users will simply switch to illicit alternatives. Not only will this cost the government much-needed tax revenue, but it can also endanger consumers.
Since the illicit trade is unregulated, these tobacco and alcohol products could contain unsafe ingredients that have the potential to harm users.
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