Paying for your sins: Treasury set to effect up to 6.5% increase in excise tax
Some consumers will have to dig a little deeper into their pockets to finance their habits as Treasury looks to increase the price of sin taxes.
The excise duties on tobacco and alcohol products will increases of between 4.5% and 6.5%.
The proposed excise tax for a bottle of sparkling wine will be 76 cents more expensive, while a 750ml bottle of wine will be 17 cents more expensive.
Ciders and alcoholic fruit beverages will be taxed at 5,5% more, while spirits will be taxed at 6.5% more.
That means a 340 ml can of beer or cider will cost 11 cents more, while a bottle of spirits will be R4.83 more expensive.
Finance Minister Enoch Godongwana announced the changes his budget statement on Wednesday.
READ: WATCH LIVE: 'Tough balancing act' as Godongwana tables budget
Following public consultation, government has proposed a flat excise duty rate of at least R2.90 per ml to both nicotine and non‐nicotine solutions, effective January 2021.
A 20 pack of cigarettes will cost an additional R1.03.
The proposed excise duty rate for cigars stands at R110.93 per 23g, compared to the previous R104.16 per 23g - this is an increase of R6.77.
According to Treasury, the consumption of cigars has moved towards more expensive brands, requiring a higher‐than‐inflation increase to maintain the targeted tax burden.
Despite the slowdown in the economic recovery in the third quarter of 2021, tax collections have strengthened since the publication of the Medium Term Budget Policy Statement in November.
With the exception of customs duties, the major tax categories have grown above 2019/20 levels.
During the country’s Covid-19 hard lockdown, government banned the sale of alcohol and tobacco for months on end.
Several organisations, including the Fair-Trade Industry and Tobacco Association, challenged the ‘draconian’ regulations in court.
The ban on tobacco was lifted months later but the liquor industry continued to face harsh limitations on trade before eventually enjoying much-needed relief.
The relaxation of the regulations has seen tax collection bounce back.
“The characteristics of the economic recovery from the pandemic have been markedly different to previous negative shocks. After the global financial crisis, it was several years before major tax category collections recovered to pre‐crisis levels as a proportion of income and consumption,” says Treasury.
“Tax resiliency in this recovery has been far stronger, potentially due to the artificial nature of the downturn through lockdowns and enforced restrictions on activity, rather than damage inflicted by a recession,” says Treasury.
ALSO READ: GDP bounces back to pre-pandemic levels as Godongwana delivers budget
Tax revenue for 2021/22 is expected to reach R1.55 trillion, surpassing pre‐ pandemic forecasts.
“The improve revenue performance is not a reflection of an improvement in the capacity of our economy. As such, we cannot plan permanent expenditure on the basis of short-term increases in commodity prices,” says Godongwana.
While sin tax might hit consumers hard, Godongwana vows to soften the blow elsewhere.
He adds Treasury will stick by 2021 commitments to drop the corporate income tax rate from 28% to 27%.
“Now is not the time to increase taxes and out the recovery at risk.
“Accordingly, we have decided to keep money in the pockets of South Africans.
“The budget includes R5.2 billion in tax relief to help support the economic recovery, provide some relief from fuel tax increases and boost incentives for youth employment,” says Godongwana.
Treasury reforms the capacitation of the South African Revenue Service (SARS) remains a critical tool for keeping the country’s economy afloat.
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