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Raising the excise tax on alcohol won’t close the government’s debt gap

Raising taxes on alcohol will not save the government’s mounting budget deficits, the National Liquor Traders (NLT) organization has said ahead of its forthcoming budget speech.

Finance Minister Enoch Godongwana will submit the 2022 budget on Wednesday, juggling a difficult balancing act from Covid-19, unemployment, controversial state-owned enterprises and sluggish economic growth.

But despite these challenges, NLT convener Lucky Ntimane said the country’s alcohol industry can no longer afford suffocating measures.

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Covid-19 and the beverage sector

Ntimane said the alcohol value chain supports nearly a million livelihoods, and that the impact of the pandemic and alcohol prohibitions of 2020 left “deep scars”.

It is estimated that it will take up to five years for the industry to return to 2019 operational levels, he said.

“The government already has a large budget deficit, which means that it has to borrow more. The cost of that debt is taking up an increasing share of the budget, which means that cuts have to be made.

“Yet our education, law enforcement and health systems need more resources, not less. How will Godongwana meet all these needs if the pot of money he can draw from grows more slowly than the need?

“He may be tempted to raise taxes, but would this close the gap? The experience of the alcohol industry suggests that it is not so simple.

“Excise taxes on alcohol have quadrupled since 2000 in the hopes that this would encourage heavy drinkers to change their lifestyle, but this has not happened.

“Actually, per capita alcohol consumption has remained more or less the same.” said Ntimane.

ALSO READ: ‘Alcohol not a sin, stop calling it a sin tax’ – drink organization

Illegal trade to take advantage of sin tax

To complicate matters, the illegal alcohol trade has nearly doubled in the past decade, he added, a rate significantly exacerbated by repeated alcohol bans.

Ntimane argued that the people who benefit most from the “aggressive tax hikes” on alcohol are those engaged in the illegal trade.

Illegal alcohol is on average 43% cheaper than legal products.

He cited a Euromonitor report that the government has collected “at least R11.3 billion less” in taxes due to tax leaks from the illicit trade.

“These may seem like abstract numbers, but the pain is being felt by people who have lost their jobs in the legal alcohol value chain, companies who cannot compete with illegal traders, and local input suppliers who are losing out on unregulated products that are either overpowered. smuggled across our borders or made with an assortment of cheap, sometimes deadly ingredients.”

Ntimane has called on Godongwana to protect the legal alcohol value chain by avoiding another tax hike.

“Our economy will not grow and we will not create jobs if we make it so much more attractive to participate in the illegal economy than to trade legally.”

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