Several alcohol industry associations are asking the South African government to allow payments of excise tax on alcohol to be deferred until the ban on alcohol sales is lifted.
South Africa has extended the ban on alcohol sales that was put in place in December 2020 as coronavirus cases climbed. Industry groups such as the South African Liquor Brand Owners Association (SALBA) and Vinpro have asked for a deferment of the payment of excise duties, and the Beer Association of South Africa (BASA) condemned the government’s extension of the alcohol sales ban.
In a January 12 statement, SALBA said the alcohol industry has “no choice but to apply for a deferment of the payment of excise duties until the ban is lifted."
SALBA noted that because the excise tax is imposed at the point of production, companies are liable for tax on products that are in warehouses and cannot be sold because of the sales ban. The alcohol industry generates an average of ZAR 2.5 billion (roughly $162 million) per month in excise tax on locally produced and imported products, according to SALBA.
Groups also cautioned the government about the growth of the illicit alcohol market during the sales ban. In a January 12 statement to news site Business Tech, BASA wrote that it is “deeply concerned that the legitimate beer sector will never recover from this extended ban,” which provides an opportunity for increased illicit alcohol sales.
“Already prior to COVID-19, World Health Organization estimates indicated that a quarter (24 percent) of all alcohol consumed in South Africa was sold illicitly,” wrote BASA. “We believe that illicit trading will now increase as criminal syndicates begin to entrench themselves, just as Al Capone did in prohibition-era America.”
In the SALBA statement, Vinpro, which represents 2,500 South African wine producers, cellars, and industry stakeholders, said the wine sector took an estimated ZAR 8 billion hit in direct sales revenue in the 17 weeks after the first alcohol sales ban was instituted in March 2020.
Vinpro Managing Director Rico Basson said the wine industry faces business closures, job losses, downward price pressure, production declines, and structural damage to subsectors as a result of the sales ban.
“The government did not indicate when alcohol sales will be allowed again. It is prudent that the industry applies all possible cost-preservation measures to keep it afloat: delaying excise tax payments is a significant factor,” said Kurt Moore, CEO of SALBA, in the statement. “The industry and its entire value chain face an enormous financial crisis, and its capacity to make these payments is severely constrained.”
In April 2020 industry groups and observers estimated that South Africa’s initial ban of alcohol and tobacco sales was costing the country roughly ZAR 135 million per day in lost tax revenue.