Time to revisit alcohol taxation in South Africa

It’s no cause for pride that South Africa nearly tops the charts as a nation of drinkers. This ranking is according to the 2018 Global Status Report on Alcohol and Health published by the World Health Organization (WHO).[1] While only a third (31%) of adults report consuming alcohol in the past year, those who do drink tend to drink heavily. According to the latest available statistics, the average South African drinker consumed 30 litres of pure alcohol in 2016. That level of consumption per drinker places the country in the sixth position globally – up from 11th place in 2010.

WHO assesses the danger of a country’s drinking not only on the basis of “how much it drinks” but on “how it drinks”. Drinking small amounts of alcohol that tot up to a large amount annually is less harmful than occasionally drinking large amounts of alcohol that add up to the same amount per year. That’s because the liver, which detoxifies alcohol, copes better with small amounts. Using a scale of 1 to 5, WHO scores countries with the least risky pattern of drinking as a ‘1’, and the riskiest patterns as a ‘5’. South Africa[2] scores a 4, just behind Russia[3] and Ukraine[4], the only two countries that received a score of 5. A recent study in the South African Medical Journal (SAMJ)[5] shows that close to half of South Africans who report drinking alcohol drink in a dangerous manner.

Alcohol consumption in this country has serious social and public health effects. A 2014 article in the SAMJ estimated that the economic, social and health costs associated with alcohol-related harms were about 12% of the GDP.[6] The latest Global Status Report shows that 7% of South African adults suffer from disorders related to alcohol use.[7] The same report found that 2% of South African adults are physically or psychologically dependent on alcohol. And 6% of all deaths in the country (10% of men and 2% of women) are attributable to alcohol use.

Ordinarily, the consumption of any legal substance that causes this much harm would be appropriately regulated and taxed to reduce the costs imposed on society. This has not been the case in South Africa. A 2014 review by the National Treasury on the taxation of alcohol noted that alcohol excise tax revenues do not cover the alcohol-attributable costs incurred by government.[8] These costs do not even include those borne by the broader society.

In South Africa, alcohol has been subject to excise taxes for more than a century. Historical data from the National Treasury shows that the tax per litre of pure alcohol for beer and spirits in real (inflation-adjusted) terms was substantially lower in 2018 than it was in 1960. In this regard, the tax treatment of alcohol has differed from that of cigarettes. After declining by 61% between 1960 and 1990, the real tax per pack of cigarettes increased by more than 500% between 1990 and 2018. This means that the real tax on cigarettes was substantially higher in 2018 than it was sixty years ago. There has been greater effort since 1994 to recover the social costs of alcohol through taxation, but government and broader society still effectively subsidise the alcohol industry.

Real excise tax on beer, spirits and cigarettes, 1960-2018. Source: National Treasury of South Africa

Increases in cigarette taxes have delivered significant additional revenue to government. Despite the recent increase in the illicit trade in cigarettes (which is due more to poor law enforcement than the high level of the tax), real excise tax revenue on cigarettes was nearly 150% higher in 2018 than in 1994. Public health has benefited greatly. One in three people smoked in the early 1990s; now it is less than one in five.

Given its societal harm, the taxation of alcohol products must be urgently revisited. This process should also rationalise the tax treatment of all alcohol products so that they are taxed equally in terms of their alcohol content. Currently, wine and beer are taxed at a much lower rate than spirits, for example.

The proper taxation of alcohol is not just good for public health; it is good for the public purse – a proposition that should be very attractive for the National Treasury in these tough economic times. The alcohol industry will point to the unintended consequences of higher taxation, including the risk of bootlegging. The experience from other countries is that all things considered, taxing alcohol at a rate closer to its total cost to society makes for a safer, healthier and more prosperous nation.


This article by Grieve Chelwa and Corné van Walbeek was first published by BusinessLive on 04 March 2019.

Grieve Chelwa is a senior lecturer of economics at the Graduate School of Business at the University of Cape Town. Corné van Walbeek is a professor of economics in the School of Economics at the University of Cape Town. This analysis forms part of work funded by DGMT on alcohol harms reduction. 

 

References:

[1] World Health Organisation (2018). Global Status Report on Alcohol and Health 2018. Geneva: World Health Organisation. Available at: https://www.who.int/substance_abuse/publications/global_alcohol_report/gsr_2018/en/

[2] World Health Organisation (2014). South Africa Alcohol Country Profile. Geneva: World Health Organization. Available at: https://www.who.int/substance_abuse/publications/global_alcohol_report/profiles/zaf.pdf?ua=1

[3] World Health Organisation (2014). Russia Alcohol Country Profile. Geneva: World Health Organization. Available at: https://www.who.int/substance_abuse/publications/global_alcohol_report/profiles/rus.pdf?ua=1

[4] World Health Organisation (2014). Ukraine Alcohol Country Profile. Geneva: World Health Organisation. Available at: https://www.who.int/substance_abuse/publications/global_alcohol_report/profiles/ukr.pdf?ua=1

[5] Vellios, NG. and Van Walbeek, CP (2018). Self-reported alcohol use and binge drinking in South Africa: Evidence from the National Income Dynamics Study, 2014 – 2015. South African Medical Journal, 108(3): 33 – 39

[6] Matzopoulos, RG et al. (2014). The cost of harmful alcohol use in South Africa. South African Medical Journal, 104(2): 127 – 132

[7] World Health Organisation (2018). Global Status Report on Alcohol and Health 2018. Geneva: World Health Organisation. Available at: https://www.who.int/substance_abuse/publications/global_alcohol_report/gsr_2018/en/

[8] National Treasury (2014). A review of the taxation of alcoholic beverages in South Africa. Pretoria: National Treasury. Available at: http://www.treasury.gov.za/public%20comments/Alc/Alcohol%20Tax%20Review%20-%20May%202014%20Discussion%20Paper.pdf