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