‘Bad policy’ fuels rise of illicit alcohol in SA

SA faces a silent, but growing crisis – the rise of illegal alcohol. While the public debate on alcohol taxation often centres on government revenue and public health, what is often missed is the unintended consequence of ill-designed policy – the rapid expansion of a shadow market that undermines both.Today, legal alcohol in SA costs 37% more than illicit substitutes. The price difference between legal and illicit alcohol is not the result of consumer choice. It’s a direct result of the way we set taxes. When the increase in excise taxes is greater than inflation, it pushes consumers away from taxed and regulated products and towards untaxed alternatives that are often unsafe. This is more than just a problem for the industry. It’s a revenue challenge for Treasury. Illicit alcohol does not exist in isolated areas. It is prevalent in towns and rural areas with low incomes, and affordability is the main factor that determines choice. Many households are forced to switch from taxed bottles to untaxed ones because of rising costs for food, fuel and electric. The cost is enormous. Governments lose billions. This is estimated to be R16.5bn per year in lost tax revenue. Legitimate businesses – from brewers to tavern owners – see their margins squeezed, which compromises the sustainability of their businesses. The most alarming thing is that consumers are exposed unregulated products, which are sometimes toxic, often sold with no regard to age restrictions, or responsible consumption. Excise taxes have two main goals: to raise revenue and to discourage harmful drinking. But when applied bluntly, without regard for affordability or enforcement realities, they can achieve the opposite.Consider the case of SA’s beer industry. Excise is already 57% of the cost to produce beer. A proposed 20% increase in excise duty on beer and other fermented beverages would not just squeeze brewers – it would make legal beer prohibitively expensive for many consumers. The predictable outcome? The predictable result? Tavern owners see their customers moving towards cheaper, non-taxed alcohols, which undermines their business. Farmers who provide barley or maize for the beer industry may see their sales drop if production of legal alcohol slows. Jobs along the value chain – from factory workers to truck drivers – are put at risk.Illicit alcohol is not monitored for quality or safety. It contains high levels of methanol, or other contaminants. It’s sold in containers that are not labeled, without any health warnings or restrictions on sales to underage people. In order to raise excise taxes, the government could be driving people towards products which cause more harm. If the policy goal is to reduce harmful alcohol consumption and raise sustainable revenues, then it must take affordability as well as enforcement seriously. First, it is important to link increases in excise taxes with inflation. The predictable inflation-based adjustments will prevent price shocks, which fuel illegal trade. Tax rates should be lowered to encourage beverage production and consumption below 3.5% ABV, rather than punishing beer. The evidence from around the world shows that this encourages consumers and producers to be more moderate, with real benefits for public health. Third, strengthen enforcement. Reforming the excise system must be done in conjunction with cracking down against illicit trade. This requires collaboration between the Sars, businesses, and local communities. Stronger penalties for illegal production and distribution, coupled with consumer education campaigns, can help protect the legal market.SA’s economic context makes this issue urgent. In a country where unemployment is above 30% and GDP growth is below 2% each job and tax revenue counts. Oxford Economics’ 2022 study shows that the beer sector supports 249,000 jobs, and contributes R71bn in GDP. In order to achieve illusory revenue increases, it is risky to undermine its viability by erratic tax hikes. This is fundamentally about public policy. Citizens must believe that decisions made by the government are in their best interests. Tax hikes that only push people to illicit operators and undermine legal businesses while failing to generate revenue will break trust. It is not a given that illicit alcohol will increase. The rise of illicit alcohol is not inevitable. SA can safeguard revenue, public health, and the industry by designing fair, predictable, evidence-based levy regimes. The alternative – punitive hikes that widen the price gap between legal and illicit products – is a path to diminished revenue, unsafe consumption, and lost livelihoods. Beer is not the enemy when it comes to fighting harmful drinking and fiscal shortages. Bad policy is the enemy, as it fuels black markets. SA has evidence. Now the question is whether or not it will act. Lisa is SAB’s vice-president for corporate affairs.
2025-11-12 10:09:04