Botswana will feel the impact of booze taxes in South Africa

Botswana will feel the impact of booze taxes in South Africa

The mere fact that Botswana is a net importer of goods from South Africa and have no immediate alternative within SACU means that it is likely to maintain ordering from that country and pay more for booze.

This week, South Africa’s Finance Minister Tito Mboweni announced the  8 percent increase of excise taxes on alcohol and cigarettes for fiscal year 2021/22.  The minister said it "it is clear the excessive alcohol consumption can lead to negative social and health outcome hence “higher prices should lead to lower consumption of alcohol products with positive spinoffs".

Mboweni announced that a 340ml can of beer or cider will cost an extra 14c, a 750ml bottle of wine will cost an extra 26c and a 750ml bottle of sparkling wine an extra 86c. Further, a bottle of 750 ml spirits, including whisky, gin or vodka, will increase by R5.50, a packet of 20 cigarettes will be an extra R1.39c, a 25 grams of piped tobacco will cost an extra 47c while a 23 gram cigar will be R7.71 more expensive.

Jonathan Hore, a tax expert explained that since excise duties being increased are production taxes, they will increase the shelf or export cost of the goods. Thus, the excise duties will automatically increase the shelf/production cost of goods in RSA, which it is feared will have a spill-over effect when such goods are imported here in Botswana. Technically, Hore argues that they will cost more than they used to whilst in RSA and when shipped over, they will also cost higher in terms of their landing cost in Botswana. “One thing we need to consider is that foreign taxes which can’t be claimed by Botswana traders such as excise duties form part of the landing costs of imported goods, especially for VAT purposes,” Hore says adding that the VAT tax base goes up by the increase in the RSA duties and that affects the selling price of such goods in Botswana.

The landing cost of the affected goods will certainly increase as the duties are an additional cost of production. What happens with excise duties is that they are levied on the producer and naturally, businesses pass the cost to the consumer, points out Hore. As a result, he says, it is obvious that an increase in the excise duty will be passed to final consumers, including those in Botswana. “Technically, they part with more than what they used to before the increase,” he says adding that businesses exist to make profits. Put differently, anything that reduces their margins is not welcome; they will hand it down to the final consumer.

 

Industry players explain that by way of excise increase in making these products (across cider, wines & spirits); it directly increases the cost of goods sold (COGS); hence they then import at a higher product cost than before. Inevitably all the other costs associated with product such as VAT, alcohol levy etc. also make the landed costs of the product higher as they are pegged as a percentage of the product. Sin tax is increased every year in the form of excise although it’s done to varying degrees.