Blow for alcohol and tobacco in South Africa

Despite calls from those in the industry to decrease taxes on alcohol and tobacco, the government has once again imposed above-inflationary excise duty increases on alcohol and tobacco.

This was revealed in the 2025 National Budget, which was presented by Finance Minister Enoch Godongwana on 12 March.

This year, excise increases will be 6.75% on alcoholic beverages, which is in line with the prior years’ implementation of the existing policy, Bowman’s Tax team in South Africa explained.

There will be a 4.75% increase in excise duties on tobacco products, including vapes, but excluding pipe tobacco and cigars, which are subject to a 6.75% increase.

CDH noted that the guideline excise tax burden as a percentage of the retail selling price of the most popular brand within each tobacco product category is currently 40%.

Except for these above‐inflation increases in excise duties on alcohol and tobacco products, tax rates remain the same.

The government has also proposed changing the effective date of future excise duty adjustments to 1 April to ease the administrative burden of implementing the adjustments on Budget Day.

Notably, these increases come on top of a 0.5 percentage point VAT hike in 2025/26, which will be followed by another 0.5 point increase in the following year, which is set to limit households’ spending power.

These increases have been met with disappointment from South Africa’s alcohol industry, which has been pushing for lower excise taxation on spirits.

This includes the South African Liquor Brand Owners’ Association (SALBA), which told Daily Investor that it is disappointed by the announcement of this 6.75% hike in alcoholic products.

“The increase is significantly higher than inflation, which was recorded at 3.2% in January, and will lead to an increase in illicit trade,” said SALBA CEO Kurt Moore.

“Illicit alcohol is sold on average 43% cheaper than legal products, and this acts as an incentive to illicit producers.”

“The above inflation increase in excise tax will only serve to exacerbate the problem. Illicit alcohol producers evade taxes such as excise tax and value-added tax, and in so doing gain a significant advantage over legal producers.”

A 2021 study commissioned by the industry and conducted by Euromonitor confirmed that the illicit industry accounts for 22% of the alcohol industry in South Africa.

“That means that at least 1 in 5 bottles in the market is potentially illicit,” Moore said.

“The fiscus is also deprived of about R11.3 billion a year, and this could potentially increase as the legal sales of alcohol decrease in the face of this unfair competition.”

“Even more alarming is the fact that illicit operators also put consumers at risk with products that do not necessarily comply with the stringent regulations governing the production of liquor products in South Africa.”

South Africa’s illegal tobacco industry is estimated to be even higher, reaching 58% in 2022 after peaking at 60% in 2021.

It was estimated that the government lost R18 billion in revenue in 2022 due to illicit cigarette trade.

According to Moore, tackling illicit trade will require a coordinated effort between industry, law enforcement, and alcohol regulators.

“Double inflation increases in taxes for legal products force consumers to turn to cheaper products, and often these cheaper products are illicit.”

“Most South Africans would agree that we do not need to tax the compliant tax citizens more, but we should be widening the tax net to collect outstanding taxes from those who evade tax.”