CONFERENCE ON TOBACCO CONTROL. SCHOOL OF ECONOMICS 16-18 JULY 2014 Alcohol tax, price and...

CONFERENCE ON TOBACCO CONTROL.SCHOOL OF ECONOMICS

16-18 JULY 2014

Alcohol tax, price and consumption

Corné van Walbeek

ALCOHOL EXCISE TAXES

Alcohol taxation in South Africa

Beer and spirits: Taxed since at least 1910

Wine: Taxed since 1942, but tax policy has been erratic

Sorghum beer: Taxed since 1992 but at very low rate

The excise tax structure on alcohol

Excise taxes on alcohol are levied as specific taxes

This is in line with international best practice

Specific taxes tend to “compress” retail prices in a narrower band

Government “subsidises” low-price product if taxes are levied as ad valorem taxes

BUT specific taxes can be eroded by inflation

Current (2014/15) excise tax rates

Product Excise duty rate Base

Malt beer R68.92 Litre of absolute alcohol

Traditional African beer (i.e. sorghum beer)

7.82 cents Litre

Traditional African beer powder

R34.70 Kilogram

Unfortified (i.e. natural) wine

R2.87 Litre

Fortified wine R5.21 Litre

Sparkling wine R9.11 Litre

Ciders and flavoured alcoholic beverages

R3.45 Litre

Spirits R137.54 Litre of absolute alcohol

A long-term perspective on cigarette, beer and spirits excise taxes

Different alcohol categories are taxed at substantially different rates

The relative importance of alcohol taxation

Alcohol excise taxes as a percentage of total government revenue

Financial year Beer

Sorghum beer Wine Spirits

Total alcohol

Cigarettes & cig.

tobacco

Total tobacc

o

1995 1.58 0.03 0.15 0.53 2.29 1.19 1.22

2000 1.17 0.02 0.20 0.39 1.78 1.65 1.78

2005 1.06 0.01 0.20 0.39 1.66 1.44 1.53

2010 1.04 0.01 0.22 0.42 1.69 1.39 1.46

2013 1.02 0.00 0.24 0.48 1.75 1.40 1.49

The relative contributions of the four alcohol categories, 2013

Trends in government revenues from the various

alcohol categories and tobacco

TRENDS IN REAL RETAIL PRICES

Some comments

Price trends based on more than 200 000 individual price data points collected by Stats SA for CPI purposes (December 2001 to May 2013)

The average price is sensitive to the composition of the “basket”

The inclusion or exclusion of a very expensive or cheap brand can have a significant impact on the average, which can distort the picture

Obviously wrong data (e.g. R400 for a can of beer) are excluded from the database

We don’t show average prices here, but focus on price trends in the most monitored and well-known brands

Six brands of beer

Three brands of red wine

Three brands of white wine

Four brands of brandy

Five brands of whisky

EXCISE TAX AND RETAIL PRICE

What we did

To avoid issues of averaging prices across various brands, we considered the price of the most monitored brand in a particular sub-category

Plot the nominal average retail price (of that particular brand) against the nominal excise tax

Calculated the total tax burden (excise tax plus VAT as a percentage of the retail price) on the secondary Y-axis

The total tax targets

Total tax (excise tax plus VAT) as a percentage of the average retail price for the category as a whole:

Beer: 35%Wine: 23%Spirits: 48%

If the actual tax burden is substantially below the target, then investigate If the brand is a particularly expensive brand, relative to the

average If that particular packaging is more expensive than the average

packaging Whether the specific tax is not set too low

Beer (Lager)

Red wine

White wine

Brandy

Whisky

Some observations

The retail price increases nearly instantaneously in response to an increase in the excise tax

Tax increases seem to be fully passed onto consumers

In some instances there is overshifting of the tax

For beer the tax burden target is missed substantially

We cannot pass much comment on the tax target for wine and spirits given the heterogeneity in product, brands and prices

The price of beer in different packaging

“Volume discount” of beer relative to individual 340 ml cans

TRENDS IN ALCOHOL CONSUMPTION

Aggregate consumption of alcohol

Per capita (15+) consumption of beer, spirits and sorghum beer

Wine consumption

Consumption cannot be derived from Treasury data, due to the way the data are reported

SAWIS indicates that since 1996 per capita consumption decreased: Natural wine: -24% (from 8.1 litres to 6.2 litres pa) Fortified wine: -32% (from 0.94 litres to 0.64 litres pa) Sparkling wine: -20% (from 0.20 litres to 0.16 litres pa) Total wine: -25% (from 9.2 litres to 7.0 litres pa)

Per capita consumption of ready-to-drink beverages increased 198% from 2.8 litres to 8.3 litres pa

Prevalence of use (consumed in last seven days)

AVERAGE PREVALENCE 2010-2012

AVERAGE ANNUAL CHANGE IN PREVALENCE PERCENTAGE 2001-2012

Female Male Total Female Male Total

Beer 9% 34% 21% 0.01 -0.05 -0.06

Brandy 6% 17% 11% 0.13 -0.33 -0.05

Flavoured Alcoholic Beverages

21% 23% 22% 1.34 1.22 1.33

Fortified wine 5% 5% 5% 0.08 0.02 0.07

Liqueur 9% 12% 11% 0.50 0.40 0.50

Natural table wine (boxes) 7% 9% 8% 0.15 0.03 0.09

Natural table wine (corked bottles)

9% 10% 9% 0.34 0.26 0.29

Rum 3% 6% 5% 0.14 0.12 0.15

Sorghum beer 3% 7% 5% -0.08 -0.46 -0.24

Sparkling wine/champagne 8% 7% 8% 0.36 0.15 0.28

Whisky 7% 17% 12% 0.40 0.84 0.58

White spirits 4% 8% 6% 0.07 -0.49 -0.25

Translating large figures into meaningful figures

. Beer

2012/13 total excise tax revenue R8 252 million

2012/13 excise tax per unit R59.36/ litre of AA

Total taxed litres of AA in beer 139 million litres of AA

Total litres of beer (at 5% alcohol content)

2780 million litres of beer

Adult (15+) population in 2012 35.5 million

Per capita consumption 78.4 litres per year

Percentage of adult population that regularly drink beer (AMPS)

21%

Number of regular beer drinkers 7.5 million

Average consumption per regular beer drinker

370 litres per year

Conclusion

Alcohol market as a whole is stable and not growing Beer consumption is stable Sorghum beer, wine and white spirits consumption is decreasing Ready-to-drink/Flavoured alcoholic beverages and whisky are

increasing A general shift from older, conservative drinks to more popular

drinks

Participation rates are relatively low, but consumption per drinker is high This explains South Africa’s poor “drinking pattern” rating

Excise taxes have increased modestly in the past 20 years, yet are still much lower than they were a generation ago