As South Africa eagerly anticipates Finance Minister Enoch Godongwana’s forthcoming 2024 Budget, expectations loom large for potential increases in excise duties, colloquially referred to as ‘sin taxes’. Pricier indulgences in alcohol and tobacco may become the new norm, reflecting the government’s ongoing efforts to combat illicit trade, which has proven to be a significant challenge despite joint initiatives by SARS and the South African Police Service.
In a recent report by PricewaterhouseCoopers (PwC), the extent of illicit trade, particularly in cigarettes, remains alarming. According to findings from the Transnational Alliance to Combat Illicit Trade (TRACIT), organized crime syndicates, corruption, and illicit trade have led to staggering tax losses of nearly R100 billion annually. The disruptive force of the Covid-19 pandemic exacerbated this issue, providing fertile ground for illicit traders to flourish amidst governmental lockdowns and restrictions.
PwC underscores the urgent need for measures to tackle illicit trade head-on. Recommendations include the adoption of the World Health Organization’s protocol to eliminate illicit trade in Tobacco Products, alongside the development of a robust track-and-trace system. Such initiatives, if implemented, could serve as crucial deterrents against the proliferation of contraband goods within the country.
Against this backdrop, PwC anticipates a straightforward approach from the government, foreseeing an uptick in excise duties for alcoholic beverages and tobacco products. Citing established guidelines, the expected increases stand at 11% for wine, 23% for beer, and 36% for spirits, based on weighted retail prices. Moreover, a 40% rise in excise duties for the most popular tobacco brand appears likely, aligning with previous trends of inflationary adjustments.
Recent budgetary announcements have signaled the government’s intent to review its excise duty policy, with past budgets highlighting the necessity for adjustments in line with inflation. As such, the trajectory suggests a continuation of this trend in Budget 2024, pending the release of finalized policy reviews. This steady approach underscores the government’s commitment to fiscal stability and revenue generation amidst economic uncertainties.
Furthermore, the realm of vaping products isn’t exempt from potential tax hikes. Following the introduction of a flat excise duty in 2022, PwC anticipates inflationary adjustments to further increase levies on nicotine and non-nicotine vaping products. This move reflects a broader strategy to regulate emerging markets and deter the consumption of potentially harmful substances.
As South Africans brace themselves for potential increases in ‘sin taxes’, the broader implications extend beyond mere fiscal adjustments. The fight against illicit trade represents a multifaceted challenge, necessitating collaborative efforts from government agencies, law enforcement, and civil society. The outcome of Budget 2024 holds significant ramifications for public health, fiscal policy, and the broader socio-economic landscape, shaping the trajectory of South Africa’s journey towards a more resilient and sustainable future.
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