Illicit booze gives the taxman a R6,4bn babbelas
SARS took a huge hit thanks to the illegal trade in 2017, and raising excise duties didn't help
Up to 14.5% of the alcohol South Africans drink is illicit, a consumer research company has found.
The sale of illicit alcohol cost the South African Revenue Service (SARS) about R6,4bn in lost revenue, according to the study by Euromonitor International, which looked at the impact of the illicit alcohol trade on the economy. The findings were presented on Thursday in Johannesburg during a panel discussion with SA alcohol industry members, SARS and research specialists.
The report, sponsored by South African Breweries, looked at 25 countries around the world, including seven in Africa.
South Africans are among the biggest alcohol consumers in the world with the average person consuming 11 litres of pure alcohol a year, according to the latest WHO data.
Illicit alcohol comes in five forms: Counterfeit and illicit brands: Illegal alcohol sold as legal brands;
Smuggling: Illegal imports of ethanol and alcoholic drinks;
Illicit homebrew: Homemade alcohol that is sold;
Tax leakage: Legal alcohol where taxes are not paid;
Surrogate: Alcohol not intended for human consumption, like cough syrup or mouthwash.
SARS tried to mitigate these losses as early as 2002 by raising excise duties on alcohol.
But the report found the rise in tax had little or no effect on the illegal sector.
The Euromonitor report found that the economy drove South Africans to drink cheaper alcohol.
There is a 51% price gap between illicit and licit alcohol because increased excise rates push up the prices of licit alcohol.
The report suggests that taxing does not hinder illicit alcohol, and suggests a multidisciplined approach, including tighter collaboration between law enforcement and the government, more law enforcement officers, and making it easier for shebeens and local tavern owners to get liquor licences.
It found that only 20% of shebeens were licensed and most law enforcement officers did not know what to do when counterfeit alcohol was found.
Mogola Makola, chief officer: enforcement at SARS, agreed with the findings. “Based on research we found that the revenue service is at serious at risk.
“We need to do a lot more, and that means looking at possible amendments to our laws. We see that merely increasing the tax rate actually hampers the industry – it’s not good enough. The loss of R6,4bn is of serious concern to SARS.”
She said an illicit economy unit has been established to combat the industry, but added that more research is needed before making policy changes.
“We need to understand why people do what they do before we make changes to laws. People who visit shebeens are not always poor. In fact, there are a lot of wealthy, highly educated people who consume alcohol at shebeens.
“So there needs to be more education. We can lower the tax rate and increase penalties but we still don’t know why the product is so attractive for consumers.”
Captain Udeen Singh, speaking on behalf of law enforcement, said it was a status symbol to go back home and have the most expensive drink at the bar. “And the owners know this. They need to supply these expensive drinks in order to bring this wealthy clientele.”
Makola said: “We are not convinced we have the whole picture. We don’t understand consumers. Why do some people choose to operate outside the system? It’s not that hard or expensive to set up a company or get a liquor licence. We need to know what motivates people to do what they do.”
Fanny Mokoena, of Meadowlands in Soweto, who founded Liquor Traders Against Crime, disputes this.
“It’s a nightmare for shebeens to get a licence. Government needs to do something about red tape. I am a shebeen owner. I had my licence denied because I don’t have a parking lot on the premises. I said, of course I don’t have parking, I live in township. The biggest problem I see is when law enforcers come and confiscate everything and on Monday we go court they give it all back because they don’t know which bottles are illicit or not.”
Singh agreed with Mokoena. “The problem is education – our officers don’t always know what they are looking for. We are currently training officers so that they can identify illicit alcohol. We are training until March next year and have already trained officers in five provinces.
“The big problem too is that we are untrusting of one another; SAPS and government officials and SARS members won’t always communicate with one another on a bust until the day before or even the day of the bust because we are worried about corruption.
“Organised crime is an issue. These guys are cartels, they are powerful and they know the industry. I personally have never seen anybody charged for illicit alcohol trade.”