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National Treasury rejects proposal to raise excise duties on tobacco in the country

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The National Treasury has noted, but rejected a number of industry stakeholder comments on the proposal to increase excise duties for tobacco and alcohol to a rate of 8 percent in a bid to raise R1.8 billion revenue for the fiscus.

The National Treasury has noted, but rejected a number of industry stakeholder comments on the proposal to increase excise duties for tobacco and alcohol to a rate of 8 percent in a bid to raise R1.8 billion revenue for the fiscus. Photo: Supplied

THE NATIONAL Treasury has noted, but rejected a number of industry stakeholder comments on the proposal to increase excise duties for tobacco and alcohol to a rate of 8 percent in a bid to raise R1.8 billion revenue for the fiscus.

Briefing parliament yesterday, Treasury said it had received written comments from 76 contributors on the 2021 Draft Tax Bills which, among others, give effect to increases of the excise duties on alcohol and tobacco products as proposed in the February Budget.

The excise hike has placed the excise incidence on the cigarette’s most popular price category (MPPC) at 45 percent compared to the Treasury’s targeted excise burden of 40 percent of the retail price of the most popular brand.

Treasury uses Peter Stuyvesant as the anchor brand in the calculator of the MPPC, but the industry argues that the MPPC now sits at the low value for money segment with the anchor brand retailing for R22.70 a pack.

Director of VAT, excise duties and sub-national taxes Mpho Legote Treasury has rejected the industry’s comments. Legote said the industry was of the view that the proposal to increase the excise rate by an above inflation rate with the current status of a struggling economy and high unemployment rate was “inconceivable”.

However, Legote said a revision of the MPPC to the proposed R22.70 would be a “fundamental and substantive policy change” with significant ramifications for tobacco control in South Africa.

“The current benchmarking using MPPC already has a differential impact on cigarette products in terms of excise burdens, so National Treasury does not envisage a situation where there is a reversal on the current level of excise duty rates,” Legote said.

“However, the excise policy framework for tobacco products is currently under review and some of these issues will be considered, inputs from all stakeholders will also be considered.”

This was also in light of the impact of the lockdown and civil unrest that gave rise to the growth of illicit trade in these products. The industry said the government should use the excise policy to suppress the growth of the illicit market by closing the gap between duty not paid and duty paid prices. But Legote said the problem of illicit trade cannot be sorted out through the excise rate adjustments, but needed to be effectively addressed through robust compliance and law enforcement mechanisms.

For alcohol, the industry was of the view that products with low alcohol by volume (ABV), like beer, should not be taxed by the same percentage rate as that of other alcoholic products.

The industry advocated that a revised increase at inflation, or below, should be applied for beer as the harm associated with products containing a high ABV should not be uniformly adopted in relation to the beer industry.

Legote said that with regard to having differentiated percentage excise rate increases, it should be noted that everything was considered in the context of the overall fiscal and policy framework imperatives.

“It’s not always the case that excise rates will increase by the same rate, except in the last 3 financial years,” he said. “However, the excise policy framework for alcoholic products is currently under review, and inputs from all stakeholders will also be considered once the review has been concluded.”

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