Big threat to one of South Africa’s most important industries

Industry experts have warned that a set minimum price on alcoholic beverages will lead the illicit alcohol trade to thrive while hurting legitimate sellers.

National Liquor Traders’ Lucky Ntimane told Newzroom Afrika that making alcohol unaffordable to curb alcohol abuse is an emotional response to a major societal issue.

At the end of 2024, the National Treasury suggested setting a minimum price below which alcohol may not be sold.

This was suggested because while the sin tax on alcoholic beverages has been increasing at rates higher than inflation, this has not been reflected in the average retail price of alcoholic beverages.

This is likely because alcohol producers and retailers bear the burden of the excise tax increases.

However, excise tax instruments are ineffective if people can afford or avoid the products they apply to by turning to illicit trade.

This is concerning for any country, including South Africa, where alcohol abuse runs rampant.

The South African Medical Council previously reported that between 74 and 282 adults die daily because of alcohol.

This reportedly costs national and provincial governments R17 billion annually.

Ntimane said the assertions made by the medical council that the alcohol industry is bleeding the economy are one-sided.

Just below 3% of tax revenue is earned through excise tax, which is about R40 billion in total. This money is meant to shoulder the burden of the negative effects of alcohol abuse.

Ntimane said the industry is completely aware of the adverse effects of alcohol abuse but that the industry also has a positive impact.

One in 31 jobs in South Africa is directly or indirectly supported by the liquor industry, which translates to roughly 499,000 jobs. Therefore, the industry supports around 1,147,000 households.

“If you are saying that you are going to increase the price of alcohol as a means of fighting alcohol abuse – that is a shortsighted approach,” he warned.

“It does not take into consideration the societal factors that give rise to people engaging in alcohol as a form of escapism.”

The illicit alcohol trade in South Africa has risen to R20 billion, and he said that by increasing the price of alcohol, more people will turn to illicit products.

He explained that about 54% of the price of a bottle of whiskey is tax, including VAT and excise duty.

The government claims that its proposed minimum price for alcoholic beverages will bring an additional R4.6 billion into the fiscus.

However, Ntimane said this number does not take into account the drop in sales that will result from the cheaper price of alcohol.

This loss in tax revenue due to the proposed change is estimated at R6.7 billion.

He said the government seems willing to mess up the economy of an entire industry for the sake of 0.2% of tax revenue and for an approach that has not been tested in science.

Ntimane said there is no research proving that these laws will work to curb alcohol abuse.

Furthermore, the lobbyists who suggested this excise tax regime change compared the South African liquor market to the markets in Europe, like Norway, rather than other African countries.

He cited the rates of illicit alcohol trade in South Africa’s neighbouring countries –

• Angola: 34%
• Zambia: 63%
• Mozambique: 71%
• Kenya: 70%

Currently, the illicit alcohol trade makes up more than an estimated 14% of the liquor trade in South Africa, but this number is rapidly increasing.