Warning about government’s higher taxes on alcohol in South Africa

The Beer Association of South Africa (BASA) has warned that the above-inflation increase in excise taxes on beer in the 2025 Budget could further encourage the country’s illicit alcohol trade.

In the final version of South Africa’s 2025 Budget, presented on 21 May, the National Treasury opted to scrap a controversial value-added tax (VAT) hike introduced in the first two budgets.

This left a significant revenue gap that the Treasury needed to fill, and it turned to a combination of measures.

This included a hike in the general fuel levy, no inflationary adjustments to South Africa’s income tax brackets, and significant hikes on excise taxes, also known as “sin taxes”.

These increased sin taxes result in South Africans paying more for various goods, including malt beer, wine, spirits, cigarettes, cigars, and vapes.

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.

While this income is much needed for South Africa’s struggling fiscus, BASA recently warned that these tax hikes may have a counterproductive effect on revenue as they could drive South Africans toward the illicit market.

South Africa’s illicit alcohol and cigarette markets have grown significantly in recent years, particularly under Covid-19 lockdown restrictions when the sale of these products was banned.

Tax Justice South Africa (TJSA) estimates that the illicit alcohol trade costs South Africans R6 billion every year.

The organisation claims that an estimated 500 million litres of dangerous illegal alcohol are consumed in South Africa every year.

“The illicit alcohol trade is completely unregulated; there are no restrictions on what criminals are selling or who they’re selling to,” TJSA said.

“Not only does illegal alcohol often contain fatal levels of alcohol and toxic ingredients, but it also costs the country’s finances over R16 million every single day.”

BASA’s warning

BASA warned that the Treasury’s above-inflation excise increase on beer in Budget 3.0 is intensifying pressure on beer producers in South Africa and will likely further encourage the country’s illicit alcohol trade.

“South Africa’s beer producers continue to face escalating input costs, weakening consumer demand, and strained infrastructure,” the organisation said. 

“An aggressive and unpredictable excise regime only adds further pressure, undermining investment, job creation, and economic growth.” 

“At the same time, the illicit alcohol trade is booming. It now accounts for an estimated 22% of total alcohol consumption in South Africa, costing the fiscus over R11.3 billion in lost revenue.”

BASA CEO Charlene Louw explained that a significant portion of South Africa’s beer industry comprises small-scale traders who serve consumers for whom beer is an affordable, occasional indulgence. 

She warned that year-on-year excise duty increases that outpace inflation reduce consumer affordability even further.

Louw said this negatively impacts the livelihoods of thousands of liquor traders who contribute meaningfully to the South African economy, both directly and through broader value chains.

She said the Treasury’s decision not to raise VAT showed that the government could listen to other points of view and recognise the economic strain on consumers and businesses in the current economic environment. 

It also showed the government could reframe policy and find alternative sources of revenue to balance the Budget, if necessary.

“The same approach should be adopted towards excise duties. We urge the government to review the current excise tax framework on alcoholic beverages,” she said. 

“In the most recent Budget, excise duties on liquor rose by 6.75% – well above the inflation rate. Today, excise taxes make up nearly 40% of the retail price of a bottle of beer, placing significant strain on consumers and the broader industry.”

Impact on small businesses

In a recent press release, BASA quoted Ntombikayise Mzamo, owner of SM&T, a small business in East London.

Mzamo said the government’s increase in excise taxes drove more customers into poverty and pushed businesses selling alcohol and tobacco towards illegal trading.

“I think the government should do more research on what the impact of excise duties is on small businesses, and involve the taverns in those conversations,” she said. 

“We’ve seen more and more people brewing without licences – and we’ve seen more smokers switching from the regular tobacco brands to cheaper alternatives.”

She added that business owners in the Eastern Cape are expecting a 100% increase in tavern licensing fees this year, from R2,500 to R5,000. 

“As a result, people will stop renewing their licences. There are not enough law enforcement agents to stop illegal taverns,” she claimed. 

“In our area, there are a lot of shebeens who don’t have licences, and they don’t stick to the opening and closing times, as the legal traders do.”

BASA called for a targeted, evidence-based approach towards excise taxes, rather than a blanket tax.

“We will continue to try to find common ground with the government on this issue. In the meantime, we will continue to fulfil our responsibility to educate consumers about responsible drinking,” Louw said.

She added that the increase in the fuel levy will also have a ripple effect across all sectors of the economy, particularly for the beer industry, which relies heavily on transportation and logistics. 

“As input costs continue to rise, businesses throughout the value chain will face growing financial pressure, further constraining their ability to operate sustainably and competitively,” she warned.