South African Breweries has highlighted the risks posed by repeated excise tax increases above inflation levels, which are fuelling the expansion of illicit alcohol trade and resulting in substantial revenue losses for the government.
The company, a subsidiary of the Johannesburg Stock Exchange-listed Anheuser-Busch InBev, acknowledges that alcohol taxes aim to mitigate associated harms but argues that the current pattern of hikes is producing adverse effects. These increases, typically two percentage points above inflation annually, accumulate over time and widen the price disparity between legal and illegal products, encouraging consumers to opt for untaxed alternatives sold at roughly half the cost.
The illicit alcohol market has grown significantly, with volumes rising 55% between 2017 and 2024 to reach a value of R25.1 billion. This expansion has deprived the treasury of R16.5 billion in taxes in the past year alone, while legitimate producers like South African Breweries estimate their own revenue shortfall at over R25 billion. Nearly one in five alcoholic beverages sold in the country now originates from illegal sources.
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As reported by Euromonitor, economic pressures exacerbate this shift, as consumers in a challenging macroeconomic environment seek affordable options. Surveys indicate that two-thirds of buyers would knowingly purchase illicit alcohol due to its lower price, with the gap between legal and illegal products ranging from 37% to 70%, particularly appealing in lower-income areas.
Testing of illicit products has revealed hazardous substances such as methanol, posing risks to public health. Communities face not only economic damage but also safety concerns from unregulated manufacturing. The Drinks Federation of South Africa, chaired by the brewer’s chief executive, describes this as a mounting danger to the economy and wellbeing, draining public funds, endangering employment, and undermining the regulated sector.
The cigarette industry serves as a stark example of similar dynamics. Illicit cigarettes now comprise 60% to 75% of the market, leading to factory closures and job losses. A major tobacco firm recently decided to shut its local manufacturing plant after years of volume declines attributed to underground trade, affecting hundreds of direct positions and thousands in the supply chain.
Broader context reveals that alcohol-related harms cost South Africa billions annually in healthcare, productivity losses, and enforcement. From World Health Organization data, excessive alcohol consumption contributes to over 3% of the national disease burden, prompting calls for balanced taxation that curbs abuse without driving trade underground. Industry stakeholders urge alignment of excise increases with inflation to sustain formal operations and tax revenues.
Efforts to combat illicit trade include collaborative panels involving regulators, researchers, and legal experts, focusing on enforcement, consumer education, and closing production loopholes. Without intervention, the formal alcohol sector warns of potential outcomes mirroring the tobacco industry’s erosion, threatening sustainability and fiscal stability.
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