By Liquor Deals Analyst – Paul Berkowitz
The next time you have a wee dram under lockdown, think about the share of your bottle that is going to the taxman. In the 2020 Budget speech, Finance Minister Tito Mboweni raised the sin tax on a 750ml bottle of whisky from R65.84 to R68.73:
The wages of sin
If you are drinking an entry-level bottle of scotch you might be spending as little as R150 for your tipple.
A little bit less than half of that – 46 percent to be exact – will be snaffled by the state, so you might as well invite a SARS representative over for a drink every time you pour one for yourself.
It is your duty to pay tax
Every time a box of cigarettes or a bottle of alcohol is sold in South Africa, the government receives a portion of the sale. We colloquially call this a ‘sin tax’ although, technically, it is a duty and not a tax and, more specifically, it is usually a customs duty.
A ‘duty’ is just a specific kind of tax. If you want to be pedantic, a tax is a levy on a person and a duty is a levy on a type of good – alcohol in this case. The difference between an excise duty and a customs duty is that an excise duty is levied on goods that are produced within a country while a customs duty is levied on goods at the border.
In practice it doesn’t matter if you’re proudly South African when you drink, or if your loyalties lie with Scotland or Ireland. Whether you are buying Bains or Three Ships whisky (an excise duty) or a nice single malt (customs duty), the South African Revenue Service (SARS) will still take the same cut in the end.
To keep things simple, we’ll refer to the duties as a ‘tax’ or ‘sin tax’ for the rest of the article. Because, at the end of the day, a tax is a tax and it means paying more for your whisky.
Money for nothing and your social checks for free
A sin tax fulfills a couple of functions. Firstly, it is one way for a government to raise money through the vices of its citizens. Secondly, it can reduce the demand for goods and services that are socially undesirable and harmful.
This graph shows the percentage increase in the duties that you pay for a bottle of whisky.
In most years, the increase has been between 5 and 15 percent, with an average increase of 10.2 percent – well above the increase in the consumer price index (CPI).
This above-inflation increase means that your whisky has become more expensive in real terms, even before you consider any mark-ups by retailers and distillers.
Bleeding whisky drinkers dry?
The increase in sin taxes seems steep, and there is academic evidence to support this. A UCT research study found that the inflation-adjusted increase in the tax on spirits was 87 percent between 1990 and 2013 – for beer, the increase was just 32 percent over the same period.
Before you revolt against this unfair discrimination, there are a couple of silver linings in this dark cloud of tax. Firstly, we’re better off than previous generations: the real sin tax on whisky is only two-thirds of its peak in the 1970s. That’s because the increases in the tax over the 70s and 80s didn’t keep pace with inflation.
Secondly, the graph above shows that the tax increases of the last six years have been below 8.5 percent and the trend has been downwards. Maybe the government has become more sympathetic to the woes of whisky lovers?
For now, we can only hope that the increase in sin tax continues to slow. We are living through difficult times and a drop of whisky is still the best remedy for the lockdown blues. Besides, what’s the alternative? The same UCT study confirms that the alcohol groups with the lowest taxes are wine and sorghum beer. Is there anyone among us who is ready to quit whisky and start drinking something else just to dodge the taxman?