KEEP UP TO DATE WITH ALL THE IMPORTANT COVID-19 INFORMATIONCOVID-19 RESOURCE PORTAL
FANews
FANews
RELATED CATEGORIES
Category Economy
SUB CATEGORIES General |  Budget 2017 |  Budget 2018 |  Budget 2019 |  Budget 2020 | 

Alcohol and tobacco ban already devastating Treasury’s coffers

16 July 2020 Mazars
Bernard Sacks, Tax Partner at Mazars

Bernard Sacks, Tax Partner at Mazars

Since the start of the nationwide COVID-19 lockdown, South Africans have been forced to make more than a few adjustments and have had to make do without some basic products at the various stages of the lockdown, including alcohol, tobacco and fast food.

With that said, the ban on the sale of these simple luxuries may in fact be far from a mere inconvenience – it could be driving South Africa into an even deeper economic hole.

This is according to Bernard Sacks, Tax Partner at Mazars, pointing to the recent announcement by Government that it would once again place a ban on the sale of alcohol. “While Government did make its decision for national health reasons, one cannot ignore the effect that these drawn-out product bans are having on tax collections. Looking at the ongoing ban on cigarettes, it was recently estimated that SARS has last around R3.5 billion in uncollected excise duties on this one product class since March. However, that is actually quite far from the actual amount that the country has lost in taxes from just this one ban.”

He notes that the above number does not take VAT into account. “According to my estimate, Treasury is probably losing out on around R320 million in uncollected VAT per month. In total, SARS is therefore losing in the region of R1.5 billion per month. Again, this is not even the complete picture since the loss is even greater when you include factors such as the uncollected fuel levies, manufacturers’ and supporting businesses’ corporate profits, and personal income taxes that this industry normally generates. Anecdotal evidence would suggest that most smokers are still finding a way of getting their hands on cigarettes, so the money that would normally be taxed is still in circulation – SARS just isn’t getting its cut.”

Still, if one only considers Sacks’ most conservative estimate of around R6 billion in taxes being lost from cigarette sales to date, the damage of the ban is still considerable. “We are looking at about R13 billion to R15 billion if this continues until the end of the year. Granted, it is a drop in the bucket compared to the R300 billion that SARS is expected to under-collect in taxes this year. But, it is billions that could have potentially gone towards initiatives to support small businesses during this time and combat unemployment, for example.”

He adds that the revenue that Treasury will lose as a result of the reinstated alcohol ban will be even greater. “In the 2019/20 financial year, SARS collected around R47 billion in excise duties from primarily alcohol and cigarettes. The collections for this year were initially projected to be R48 billion. If one factors in a total ban on alcohol sales alongside the cigarette ban, the R1.5 billion monthly loss in taxes could be tripled. If both of these bans are upheld until the end of the year, we are looking at total losses upward of R30 billion. Once again, that figure is solely a calculation of lost excise duties and VAT – it does not take other lost taxes into account. This shows us just how hard these product bans are hitting the country on a fiscal level,” Sacks concludes.

Quick Polls

QUESTION

The intention with lockdown was to delay or flatten the Covid-19 infection curve and give both the private and public healthcare sectors time to prepare for the inevitable onslaught. Did the strategy work?

ANSWER

No, the true numbers are not reflected. Almost a quarter of South Africans may already have been infected with Covid-19
It’s too soon to tell. We will likely get a second wave with stringent lockdown regulations in place again
Yes, South Africa bought enough time to make a significant difference. We saved lives and have passed our peak. The worst is over
fanews magazine
FAnews August 2020 Get the latest issue of FAnews

This month's headlines

Ethical behaviour - are you toeing the line?
Latest business interruption developments raise more questions than answers
Brokers remember: You are accountable...
A sustainable pension - How to manage living annuities in uncertain times
Claim stats… life can change in a heartbeat
Are South Africa’s income protection benefit providers ready for COVID-19?
Subscribe now