South Africa Limits Tax Hikes to Virus-Hit Booze and Tobacco

South Africa’s alcohol and tobacco industries, already reeling from coronavirus restrictions that banned the sale of products, are now being hit with higher taxes.

Excise duties on those products were raised by 8% in the budget review presented by Finance Minister Tito Mboweni on Wednesday. Taxes on most other industries were left unchanged and the Treasury scrapped broader plans to raise an additional 40 billion rand ($2.8 billion) in revenue over four years from various sources.

The increase in so-called sin taxes deals a further blow to companies that incurred losses when the sale of their products were banned or restricted at various stages during a lockdown. Revenue from excise duties is expected to fall by almost half in the current fiscal year due to the curbs and tax deferrals, the Treasury said.

While alcohol and tobacco tax increases are standard in every budget, the industries had lobbied the government to grant them a reprieve this time around.

The policy framework for both alcohol and tobacco will be reviewed in the current year, according to the Treasury. Taxes account for about 40% of retail price of the most popular tobacco brands in South Africa, compared with the World Health Organization’s recommendation of at least 70%, it said.

The lockdown measures spurred the South African unit of Anheuser-Busch Inbev NV and other alcohol companies to put expansion plans on hold, and the new taxes could place other investments at risk. Higher taxes may also deliver a boost for criminal networks that specialize in the import and sale of illicit alcohol and tobacco products, allowing them to increase their market share.

©2021 Bloomberg L.P.

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