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South Africa mulls tax hikes on alcohol, vaping, and smoking.

Reference: Published by Luke Fraser (BusinessTech), 16 February 2024

South African excise duties, popularly known as “sin taxes,” are about to be raised by the government. This could result in higher costs for South Africans who indulge in their favorite vices. According to PwC’s estimate for the 2024 Budget, the South African Police Service, and the South African Revenue Service (SARS) have collaborated to recover illicit goods. However, the black market remains a major threat to the country, particularly to cigarettes.

The Transnational Alliance to Combat Illicit Trade (TRACIT) released a report titled “Organised Crime, Illicit Trade and Corruption: Spotlight on South Africa” through Business Unity South Africa (BUSA). The report suggests that the nation’s widespread trade in illicit goods may be costing it close to R100 billion in tax revenue annually. The research attributes the rise in illicit trade to the COVID-19 pandemic, which allowed illegal merchants to expand their operations in the face of government lockdowns, prohibitions, and constraints that affected legitimate markets and led to shortages.

PwC anticipates that new initiatives to stop illicit trading will be included in the 2019 budget in light of these issues. They also demand that the World Health Organization’s treaty, which seeks to outlaw the illegal tobacco trade by 2024, be ratified by the government. PwC further suggests developing a workable track-and-trace system to stop illegal trading.

Right now, PwC genuinely anticipates modest hikes in the excise levies on alcohol and tobacco. The government’s current excise tax policy sets rates at 11% for wine, 23% for beer, 36% for spirits, and 40% for the cost of the most popular tobacco brand, based on weighted retail prices. PwC points to previous budgets that raised tobacco and alcohol excise taxes at rates more than inflation, and they predict that the 2024 budget will announce a similar inflationary increase.

Tax increases on vaping products are also projected. Starting in 2022, the government imposed a fixed excise charge of R2.90 per milliliter on vaping goods that contained nicotine or not. This obligation became operative on June 1, 2023. According to PwC, this commitment will increase in step with inflation.

The government’s goal of stopping illegal commerce and raising tax revenue remains the same, even as South Africans brace themselves for potential increases in sin taxes. When Finance Minister Enoch Godongwana releases his next budget statement, more details about the specific policies and changes that are anticipated will become apparent.