Closing tax leakage from illicit alcohol trade critical for post-lockdown economic recovery

by | Sep 9, 2020 | Covid-19

The alcohol industry notes the recent media reports attributed to the SARS Commissioner Edward Kieswetter confirming that the illicit trade of alcohol is thriving and that it could take years to dismantle the criminal networks that entrenched themselves as a result of the ban on the sale of alcohol during the Covid-19 lockdown.

National Treasury reports that the Government lost R9.5 billion in alcohol and tobacco taxes combined during the first four months of the fiscal year.

Furthermore, Stats SA revealed that South Africa’s economy suffered a significant contraction from April to June, when the country operated under widespread lockdown. The report stated that the retail ban on alcohol sales and closure of tourist accommodation facilities were notable drags on trade activity, with consumer spending on alcohol and cigarettes falling by 92.4%.

Spokesperson for the alcohol industry Sibani Mngadi said, “The closing of tax leakages and efficient collection of revenue is one of the key priorities for the country’s economic recovery. The alcohol industry is committed to working with SARS to find solutions to the problem of illicit trade which poses a mutual revenue risk for both Government and the industry.”

Pre Covid-19, the alcohol industry lost an amount of R12.9 billion per year to illicit trade, which converts to a loss of R6.4 billion to the National Treasury, according to the study by Euromonitor. While the losses are still being quantified, the value of illicit trade is expected to have increased exponentially following the two alcohol bans.

The legal alcohol sector contributes R72 billion to the Government’s fiscus by way of taxation, VAT, and excise and in 2019, the alcohol sector contributed 3.4% (R173 billion) of South Africa’s nominal GDP.

The illicit market has a detrimental effect on the overall economy as it does not contribute to the government fiscus. It also harms the entire value chain that sustains thousands of farming, packaging, distribution, township-based entities—such as taverns, as well as retail outlets selling alcohol for off-site consumption—and many labour-intensive businesses (restaurants, bars, clubs, and hotels).

Mngadi added, “We are deeply concerned about the safety risks associated with the consumption of illegal concoctions and the commercial growth of an illicit alcohol network.  Unregulated alcohol is not subject to stringent quality control measures. As witnessed during the two bans on alcohol sales, the illegal manufacture of alcoholic concoctions posed serious health risks to consumers. We urge consumers to purchase their preferred products from licensed outlets only.”

Consumers are urged to call the Consumer Goods Council hotline on 0800 014 856 to report illicit products or illegal trading activities.

He added that the illicit market does not comply with the measures implemented by the industry and leads to further irresponsible consumption of alcohol.

The alcohol industry reiterates its commitment to partner with the Government to create a social compact that drives behavioural change regarding the use and consumption of alcohol but calls for considerably increased law enforcement in this part of the market.

We will continue to offer our unanimous support in making our assets available to Government in fighting this pandemic together.

 

SA Wine Industry

SA Wine Industry

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