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South Africa Consults On Alcoholic Beverage Taxes

by Lorys Charalambous,, Cyprus

07 May 2014

The National Treasury has published for public comment a discussion paper on the future taxation of alcoholic beverages in South Africa, following the Minister of Finance's announcement in both the 2010 and 2012 Budget of his intention to review excise duties.

According to the National Treasury, the proposals contained in the discussion paper should be seen as part of a larger package of measures to address the problems associated with alcohol consumption. The Treasury has proposed changes to the structure of taxes on alcoholic beverages, stricter rules on the purchase of alcohol by young persons, and restrictions on liquor trading hours and restrictions on alcohol advertising.

South Africa applies an alcohol excise duty rate structure that differentiates between alcoholic beverage types. International benchmarks were used as reference in 2002 and 2012 when the tax burdens on the various types of alcoholic beverages were set or adjusted. The total consumption tax burden – excise duties plus value added tax – as a percentage of the weighted average retail selling price for wine, beer and spirits is currently set at 23 percent, 35 percent, and 48 percent, respectively.

The paper notes that appropriate excise tax rates for different types of alcoholic beverages are informed by a combination of factors. To fully 'price' the external costs of alcohol abuse, excise duties on alcoholic beverages would need to increase significantly, the paper says. However, it is also recognized that higher excise rates may exacerbate social problems arising from excessive alcohol consumption as heavy drinkers turn to cheaper, or illicit, alcoholic beverages. Therefore, it proposes that the overall effectiveness of the alcohol excise tax regime, the costs and complexity of tax administration and compliance, and the potential impact on the economy and on illicit trade should all be considered in reforming the current excise tax regime for alcoholic beverages.

In particular, the consultation considers whether a uniform tax based on alcohol content, rather than by product type, should be considered. Excise duties on alcoholic beverages were worth about ZAR14bn (USD1.3bn) in 2012/13.

Written comments on the discussion paper should be submitted to the National Treasury by June 30, 2014.

TAGS: South Africa | compliance | tax | business | excise duty | tax rates | retail | Africa

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