The wages of sin taxes is ... not quite death, but pretty painful
Passing pleasures come at a higher and higher cost
Minister of Finance Malusi Gigaba announced a hike in the sin tax in his first budget speech on Wednesday and producers of “luxury goods” in the tobacco and alcohol sectors pretty much saw it coming.
With a widening debt gap, lacklustre economic growth projections and ailing state entities, the government is under pressure and will have to rely on tax to maintain the national budget.
Gigaba announced a 6% increase to the excise duty of alcohol and a 10% increase to the excise duty of tobacco. The government is also expecting to draw R1.9-billion in revenue from a sugar tax which is coming into effect on April 1.
“In developing these tax proposals, the government reviewed the potential contributions from the three major tax instruments which raise over 80% of our revenue, personal and corporate income tax as well as VAT,” Gigaba said.Marcus Tomlinson, co-founder of Cigars 4 Africa, said sin tax has arguably had the largest effect on the handmade, premium cigar trade.
“Someone who is willing to pay R200 on a premium cigar today is unlikely to buy the same calibre of cigar at R250 tomorrow. The unfortunate result is that, with each tax hike, consumers are pressed to seek out cheaper and cheaper options – options that eventually may even pose higher health risks to them as they edge nearer the mass market cigarillo/cigarette industry, or perhaps even worse, the counterfeit cigar market,” said Tomlinson.
Axe Hill winery owner Mike Neebe said: “The reality is that sin tax is a convenient government revenue stream which increases annually and adds to an already overloaded bureaucratic burden which the industry is subjected to, including a plethora of levies and fees payable to various government and non-government entities.”Neebe said many producers could leave the industry or, where still viable, mechanise to reduce their cost structure. For those affected by drought and fires it will take years to repair, which should be of concern to any economic planning as this feeds into unemployment and growth, he said.
Neebe said there was a perception that there was no real concern for the wine industry from the government which has left producers with little choice to either put up or pull out.
“With the capital stock already in the ground, support could be an even bigger lever to propel tourism without major investment. It could result in increased employment and tourism footfall (local and foreign) which feeds into the economy and thus growth of GDP,” Neebe said.
Pieter Ferreira, chairman of the Cap Classique Producers’ Association, said in recent years the government had adjusted the alcohol tax reform, which the association welcomed as it included a review of how excise duty on sparkling wine is calculated.
“Champagne and all sparkling wines in South Africa have always been classed as luxury goods and therefore we pay more sin tax,” said Ferreira.
He said the excise duty on sparkling wine has risen well above inflation in recent years, mainly due to the influence of high-priced champagne imports. As a result, the difference between the excise duties on sparkling wine and still wine has increased substantially, he said.