Excise taxes on beer – balancing revenue and health

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Professor Keith Engel | Chief Executive Officer | South African Institute of Taxation | mail me


Excise taxes on beer have become a contentious issue, raising concerns about their impact on consumers, producers and the economy.

Adjusting tax policies can be challenging, though some amendments are more accepted than others. For example, major increases in beer excise taxes tend to encounter less public resistance than other tax changes.

Taxes may not always precisely influence behavior, but they can effectively generate revenue for public services.

The impact of excise taxes

As taxes increase, so do prices. This burden heavily affects many consumers already struggling in a difficult economic climate. Higher beer prices may push consumers toward illicit or homemade alternatives, which pose severe health risks. This shift could decrease government revenue, a phenomenon explained by the Laffer Curve.

While some consumers prefer craft or premium beers, many middle- and lower-income individuals tend to choose more affordable options. This approach may unfairly target a specific demographic, raising concerns about equity and the regressive nature of beer taxation.

After attending our annual Tax Indaba, I had the opportunity to speak at the Beer Tax Indaba. I learned that taxes on beer have become substantial, with the government collecting 38% of total revenue from excise and value-added taxes. After accounting for production costs and retail margins, only 20% remains for beer manufacturers to make a margin.

Comparative excise taxes on beer 

Beer taxes have outpaced inflation during periods of high inflation. At these rates, excise taxes may become counterproductive, shrinking the revenue pool as taxes rise beyond a viable point.

The government needs revenue to cover expenditures and debt while promoting economic growth. Therefore, it should proceed cautiously to maintain its current revenue share.

Countries like Canada and Australia moderate excise tax adjustments during high inflation periods. In such times, consumer purchasing power tends to decrease, so tax increases are less viable.

Irrational and unfair

The enactment of excise taxes often seems irrational and unfair. The taxation of alcoholic beverages is perplexing and arbitrary. The current system fails to tax alcohol products uniformly based on their alcohol content, with beer bearing a disproportionate burden relative to other products.

Producers and retailers face challenges when excise tax increases are announced on the day of the Minister’s budget speech. The sudden implementation of new excise rates creates difficulties, as producers and retailers cannot quickly adjust prices and systems.

In conclusion

Excise taxes should be implemented at least one month after the budget speech to allow producers and retailers time to adjust. Moreover, the current method of annually reassessing excise taxes is too discretionary and sudden.

The government could adopt a more transparent approach, allowing excise changes to be determined and known to beer manufacturers three to five years in advance.

While taxation plays a role in alcohol policy, overly discretionary excise taxes threaten to do more harm than good. A more measured, collaborative approach would better serve the economy, public health, and South African society. Greater certainty around excise tax would improve the system’s efficiency significantly.


 



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