The Minister of Finance’s decision to proceed with an above-inflation excise increase on beer in Budget 3.0 is intensifying pressure on beer producers and is likely to further encourage the illicit alcohol trade, warns the Beer Association of South Africa (Basa).
Charlene Louw, CEO of the Beer Association of South Africa (Basa). Image supplied
South Africa’s beer producers continue to face escalating input costs, weakening consumer demand, and strained infrastructure. An aggressive and unpredictable excise regime only adds further pressure — undermining investment, job creation, and economic growth.
At the same time, the illicit alcohol trade is booming. It now accounts for an estimated 22% of total alcohol consumption in South Africa, costing the fiscus over R11.3bn in lost revenue.
“A significant portion of South Africa’s beer industry is made up of small-scale traders who serve consumers for whom beer is an affordable, occasional indulgence,” says Charlene Louw, CEO of the Beer Association of South Africa (Basa).
“Year-on-year excise duty increases that outpace inflation reduce consumer affordability even further, negatively impacting the livelihoods of thousands of liquor traders who contribute meaningfully to the South African economy — both directly and through broader value chains.”
“Many of us small tavern owners have struggled to recover since the impact of Covid-19,” says Ntombikayise Mzamo, owner of SM&T, a small business in East London.
“With the rising cost of goods and operating expenses, sustaining and growing our businesses has become increasingly difficult.”
Mamikie Madlala, owner of Saint M Tavern in Soweto, explains that most of her customers live hand-to-mouth, relying on irregular income from self-employment or only visiting the tavern after receiving their monthly wages.
Louw said the Minister’s decision not to raise VAT showed government was able to listen to other points of view and recognise the economic strain on consumers and businesses in the current economic environment. It also showed government could reframe policy and find alternative sources of revenue to balance the budget, if necessary.
The same approach should be adopted towards excise duties, she says.
“We urge government to review the current excise tax framework on alcoholic beverages. In the most recent budget, excise duties on liquor rose by 6.75% — well above the inflation rate. Today, excise taxes make up nearly 40% of the retail price of a bottle of beer, placing significant strain on consumers and the broader industry.”
Mzamo said government’s increase in excise taxes was driving more customers into poverty and pushing businesses selling alcohol and tobacco towards illegal trading.
“I think government should do more research on what the impact of excise duties is on small businesses, and involve the taverns in those conversations,” she says. “We’ve seen more and more people brewing without licences – and we’ve seen more smokers switching from the regular tobacco brands to cheaper alternatives.
“What is government trying to achieve by targeting the alcohol industry?” she asks.
“Here in the Eastern Cape, we are expecting a 100% increase in tavern licensing fees this year, from R2500 to R5000. As a result, people will stop renewing their licences. There are not enough law enforcement agents to stop illegal taverns. In our area there are a lot of shebeens who don’t have licences, and they don’t stick to the opening and closing times, as the legal traders do.”
Madlala noted that liquor traders operate without external support, unlike some other sectors that benefit from government subsidies or preferential financing. “We rely solely on limited working capital to purchase stock,” she explained.
“As profit margins continue to shrink, we’re left with no choice but to reduce our stock levels.”
As a businesswoman operating in Soweto, Madlala sees no signs that government is using tax revenue to make infrastructural improvements.
“We as liquor traders are contributing to government revenue and we get nothing back. During Covid, when other businesses like taxis received subsidies, we did not receive a cent – even though we suffered the most because we were closed for weeks.”
Madlala says government should bear in mind that liquor traders are still trying to get back to the same position they were before Covid. At the least, government should have suspended excise taxes for a while or not increased them.
Like Mzamo, she warns that many small liquor sellers are being driven towards illegal trading, not only by the burden of excise taxes but also by the onerous costs of licensing.
If government wants to contribute constructively to the liquor industry, it should assist small tavern businesses with capital and provide business training for the shebeens which are dipping into their profits for personal spending rather than reinvesting in stock, Madlala adds.
BASA adds its voice to the growing clamour to reform liquor excise tax to create a more balanced and sustainable regime.
“We call for a targeted, evidence-based approach towards excise taxes, rather than a blanket tax that fails to reduce harm,” says Louw.
“We will continue to try to find common ground with government on this issue. In the meantime, we will continue to fulfil our responsibility to educate consumers about responsible drinking.”
The increase in the fuel levy will have a ripple effect across all sectors of the economy — particularly for the beer industry, which rely heavily on transportation and logistics. As input costs continue to rise, businesses throughout the value chain will face growing financial pressure, further constraining their ability to operate sustainably and competitively.
