South Africa’s National Treasury Seeks Public Input on Alcohol Taxation and Policy Changes Ahead of 2025 Budget

South Africa’s National Treasury has published a policy review on the taxation of alcoholic beverages, inviting public comments as part of its preparations for the 2025 Budget. The review builds on the 2014 excise tax policy, proposing adjustments aimed at aligning the tax system with both fiscal goals and public health priorities. Among the key issues addressed are changes in the alcohol industry, the rise of illicit alcohol trade, and the potential implementation of minimum unit pricing as a long-term measure.

One of the central proposals in the review is a shift toward taxing alcoholic beverages based on alcohol content, as opposed to the current system, which levies taxes as a percentage of the retail price. Since 2004, excise duties have been calculated as a percentage of the weighted average retail price i.e 11% for wine, 23% for beer, and 36% for spirits. However, inflationary pressures and annual tax increases have led to a widening gap between the tax burdens on different types of alcohol. Over the past decade, the excise duty differential between beer and spirits has grown by 148%, while the gap between wine and spirits has increased by 136%.

These disparities have raised concerns about fairness and competition within the industry, with some stakeholders calling for a more uniform approach. A key issue is the introduction of low-alcohol wines (containing 0.5% to 4.5% alcohol). Currently, these wines are taxed at the same rate as higher-alcohol varieties, despite their potential to reduce alcohol-related harm. Treasury has proposed two potential solutions: maintaining the current tax rate for low-alcohol wines while increasing taxes on higher-alcohol wines or adjusting excise duties to be directly proportional to alcohol content.

Treasury is also exploring the possibility of implementing minimum unit pricing for alcohol, which would establish a price floor below which alcohol cannot be sold. This measure aims to curb the consumption of cheap alcohol, prevent tax avoidance through discounts, and reduce alcohol-related harm. The World Health Organization has endorsed minimum unit pricing as an effective public health measure.

Public input is being solicited until December 13, 2024, with Treasury urging stakeholders to submit detailed comments on the proposals. After the consultation period, the draft proposals will be revised and incorporated into the 2025 Budget. In addition to alcohol taxation, Treasury is also seeking feedback on phase two of the carbon tax design and the tax treatment of collective investment schemes. The outcome of this review will be critical in shaping South Africa’s future tax policies, with a focus on addressing public health concerns while maintaining a fair and effective fiscal system.