Government is disproportionately reliant on the beer-making industry for excise duties, which accounted for 34.7% of total excise revenues in the 2023/24 financial year, JSE-listed beer maker South African Breweries (SAB) has said.

Over the past few years, the company has made repeated appeals to government to reconsider its approach to beer taxation policies.

In a report on the burden of unpredictable excise taxes and high inflation on beer producers and consumers in South Africa, of which the key findings were published on September 16, it was pointed out that the trajectory in excise duties on beer had evolved significantly, often increasing above projected inflation, consumer price index (CPI) inflation outcomes and retail prices, which had led to higher prices for consumers, elevated production expenses and unpredictability for producers.

The full report, compiled for SAB by Oxford Economics Africa, will be published later this month.

The key findings indicate that a 1% increase in beer prices above inflation consistently results in a 0.9% decline in demand for the beverage.

“Sharp increases in excise duties during periods of high inflation and weak economic growth can dampen consumption, productive potential and fiscal receipts,” Oxford Economics Africa lead economist: Africa consulting Deon Fourie said at the release of the key findings at the JSE, in Sandton.

The key findings showed that for every 1% increase in economic growth, excise tax receipts on beer rose by an average of 1.8%.

Higher production costs, excise duties and inflation in South Africa have increased beer prices substantially, with a 500 ml bottle having more than doubled in both price and taxes over the past decade.

“What [government is] effectively doing is taxing low-income people disproportionately. Beer is being hit more, and maybe because the volumes are large and a larger portion of the population consumes the product.

“However, [government is] hitting the masses and not the rich, so it doesn't really make a lot of sense,” South African Institute of Taxation CEO Keith Engel said at the event.

Fourie criticised government’s approach, saying that the over-taxation was beginning to show diminishing returns, noting that, while nominal excise receipts increased by an average of 9% a year from 2012/13 to 2023/24, real excise revenues have grown more slowly by 3.5% a year, with rate-adjusted collections rising by only 1.7% a year.

He said nominal excise revenues from beer managed to increase by only 2.4% year-on-year in 2023/24, implying that expectations for higher tax receipts from beer may not materialise.

“This indicates that persistent above-inflation duty hikes have become less effective over time, leading to reduced responsiveness in fiscal income.

"Ongoing sharp escalations in duties can adversely affect revenue collections and consumer behaviour driving some people towards other excisable products or the illicit alcohol market,” Fourie explained.

The key findings show that South Africa’s overall tax burden on beer, made up of excise duties plus value-added tax (VAT), has risen acutely since 2012/13 by 161.3% to R33.4-billion in 2023/24.

Although beer excise revenues accounted for only 1.1% of South Africa’s aggregate fiscal income between 2012/13 and 2023/24 on average, elevated duties on the beverage had an outsized adverse influence on the sustainability of the beer value chain, the people employed therein, and the economic activity it supported, Fourie pointed out.

The country’s excise regime and overall tax burden target for beer have been altered four times since 1994/95. The previous overall tax burden target for beer was 35% in excise plus Vat, which was last changed in 2015/16 to 23% of the beverage’s weighted average retail selling price (Warsp) in excise duties only.

However, despite this, government adjusts excise duties on beer yearly by projected retail prices for the next fiscal year or by the expected CPI inflation rate, whichever is higher, with the virtue to maintain the overall tax burden aligned with the National Treasury’s official guidelines.

“The principle of maintaining the overall tax burden has, however, been negated amid several excise duty escalations on beer that have persisted above projected and actual inflation outcomes, as well as retail price increases,” Fourie said.

These adjustments to excise duties have raised the excise tax burden on beer to 24.8% of the Warsp in 2023/24, up from 19.8% in 2015/16.

In that regard, the key findings show that the excise burden on beer has continued to trend above the National Treasury’s target of 23% of Warsp over the past six years and was 1.8 percentage points above that threshold in 2023/24.

It was also indicated that, when compared with trends in benchmark countries such as Australia, Canada, Mauritius, the UK and Tanzania, South Africa has endured the most significant upward disparity between beer excise duties and inflation outcomes since 2013/14.

“South Africa’s reliance on beer excise taxes has grown, contrasting with more stable or declining dependence in other nations. It is important to support the viability of beer producers by avoiding excessive duty escalations, especially given the feedback loops between manufacturers and the wider economy,” Fourie said.

He warned that the growing gap between nominal and rate-adjusted excise revenues indicated a progressively weak response to duty escalations versus what has been witnessed in benchmark countries, risking long-term fiscal instability.

“South Africa may reach an inflection point in the near future, where the burden of unpredictable duty increases stifles industry growth and exacerbates socioeconomic challenges,” Fourie cautioned.

A year ago, on September 6, 2023, Engineering News quoted SAB CEO Richard Rivett-Carnac warning of policy uncertainty surrounding excise taxes and the dangers of excessively taxing the beer industry.

"We need, as an industry, strong policy certainty around excise tax. We know that the government is under pressure from a budgetary perspective. For ten years, we've seen massively inflated excise tax increases when compared with inflation. That's against policy. And that really hurts the industry," he said, speaking at the SAB State of the Beer Economy event at the company's Alrode brewery, in Alberton.

At the time, he said that, with the industry declining and consumers being under pressure, the industry could not afford for the government to veer away from established taxation policies.

Over-taxation would, in Rivett-Carnac's words, "effectively kick an industry that's really struggling right now – an industry that's super important to the whole country."