Diageo South Africa, South Africa's leading premium spirits company, calls for the Government of National Unity (GNU) to ensure that its decisions do not help fuel the illicit trade in alcohol products, and the criminality associated with these illegal activities.
Sibani Mngadi, corporate relations director at Diageo South Africa, emphasized that the 2% above inflation excise increase contradicts the National Treasury’s very own policy review: “The proposed tax increase is at odds with Treasury’s findings, which explicitly discourage further tax hikes on spirits. Illicit trade has reached shocking levels in South Africa, and the excise decision by government will turn it into a full-blown crisis.”
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In November 2024, Treasury published a review document entitled Taxation of Alcoholic Beverages. It acknowledged that spirits are disproportionately taxed compared to other alcohol categories. Treasury concluded that “no further increases are proposed for consideration for the spirits category.” In a deeply concerning move, Treasury has gone against its own recommendations and research.
The Treasury review also identified illicit trade as a “serious challenge requiring greater and concerted attention to curb both its supply and demand”. According to a study by Euromonitor, the illicit alcohol market represents 21% of South Africa’s total alcohol market by value. Smuggling accounts for 68% of this illicit trade, including non-duty-paid imports, diverted exports, and theft of duty-free stock. Euromonitor estimates that the government is losing R11.3 billion in tax revenue annually due to illicit trade.
“Rather than increasing taxes, the focus should be on strengthening SARS’s capacity to combat tax evasion and recover the more than R11 billion lost annually to illegal alcohol trade,” Mngadi stated. “This approach would not only protect the legal alcohol industry but also boost government revenue without burdening consumers or encouraging illicit activity.”
Above inflation increases in excise and the resultant increase in the illicit alcohol trade have disastrous consequences: livelihoods are negatively impacted across the value-chain; alcohol-related deaths increase due to illegal concoctions; the scope of illicit syndicates and other criminal activities are expanded; and the revenue generated from legal sales dwindle.
Last year's above-inflation excise tax increase of 6.7% also failed to deliver the expected revenue growth. Instead, SARS collected only 3.4% more in spirits tax revenue, as legal sales volumes declined.
Diageo South Africa hopes the GNU’s budget deliberations will prioritise an excise regime that can expand the fiscus by promoting economic growth and job creation in the alcohol industry.
