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1、OXFORDEC ONOM ICSAFRICADOUBLE THE PAIN THE BURDEN OF UNPREDICTABLE EXCISE TAXES&HIGH INFLATION ON BEER PRODUCERS&CONSUMERS IN SOUTH AFRICAOCTOBER 2024OXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationABBREVIATIONSEXECUTIVE SUMMARY1.INTRODUCTION2.INFLATION AND THE SUPP

2、LY AND DEMAND OF BEER 2.1 Effects of Inflation on the Supply of Beer 2.2 Effects of Inflation on the Demand for Beer3.THE NEXUS OF TAXES,INFLATION,AND ECONOMIC GROWTH 3.1 Interactions Between Excise Taxes,Inflation,and Macroeconomic Growth 3.2 South Africas Tax Buoyancy 3.3 Consumer Price Elasticity

3、 of Demand for Beer4.EXCISE DUTIES LEVIED ON BEER IN SOUTH AFRICA 4.1 Dissecting Fiscal Receipts from Excisable Products 4.2 Evolution of Excise Duties on Beer in South Africa versus CPI Inflation 4.3 Responsiveness of Excise Revenues to Above-Inflation Duties on Beer 4.4 Tracking South Africas Tax

4、Burden on Beer in Relation to the Excise Targets5.BENCHMARKING SOUTH AFRICAS EXCISE DUTIES ON BEER 5.1 Excise Regimes and Inflation in the Selection of Benchmark Countries 5.2 Evaluating South Africas Excise Revenue against the Benchmark Countries 5.3 Balancing the Brunt of the Burden6.CONCLUSIONREF

5、ERENCESABOUT OXFORD ECONOMICS AFRICATABLE OF CONTENTSIVV144814 141718222223262934344043505462iiiOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationABV Alcoholic strength by volumeATO Australian Taxation OfficeAUD Australian dollarCAD Canadian dollarCAGR Compound annual

6、 growth rateCPI Consumer price indexCRA Canada Revenue AgencyGBP British poundGDP Gross domestic productHMRC His/Her Majestys Revenue&CustomsLAA Litres of absolute alcoholml MillilitreMRA Mauritius Revenue AuthorityMUR Mauritian rupeeONS UK Office for National Statisticsp.a.Per annumPDI Personal dis

7、posable incomePED Price elasticity of demandPMI Purchasing managers indexPPI Producer price indexppt Percentage pointRPI Retail price indexSAB South African BreweriesTRA Tanzania Revenue AuthorityTZS Tanzanian shillingUSD United States dollarVAT Value-added taxWARSP Weighted average retail selling p

8、riceWHO World Health OrganizationZAR South African randABBREVIATIONSiviiiOXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High InflationEXECUTIVE SUMMARYIn 1643,the UK was the first country to i

9、ntroduce excise duties on beer to help fund government expenses during the English Civil War.These indirect taxes have become standard practice in many countries ever since.Excise duties,in addition to value-added tax(VAT),comprise the overall tax burden that is shifted to consumers through higher r

10、etail prices.Although these levies aim to increase fiscal revenues and discourage the harmful use of products with negative externalities,they generally raise producer expenses and can potentially accelerate market inflation in most countries.South Africa imposes an alcoholic-content-based specific

11、excise on beer production as a fixed percentage of the beverages weighted average retail selling price(WARSP).The government levies and raises these duties on beer in South African rands(ZAR)per litre of absolute alcohol content(LAA)towards official targets as per the National Treasurys guidelines e

12、very year.The guideline tax burden for beer emanates from the National Treasurys 2014 excise policy discussion document,which reviewed the taxation of alcoholic beverages from its 2002 excise targets.These tax burden targets are also confirmed and adjustments to the level of duties made during the a

13、nnual delivery of the national budget.The countrys excise regime and overall tax burden target for beer have been altered four times since 1994/95.The previous overall tax burden target for beer was 35%in excise plus VAT,which was last changed in 2015/16 to 23%of WARSP in excise duties only.Regardle

14、ss,the government adjusts excise duties on beer annually by projected retail prices for the next fiscal year or by the expected consumer price index(CPI)inflation rate,whichever is higher,with the virtue to maintain the overall tax burden aligned with the National Treasurys official guidelines.The p

15、rinciple of maintaining the overall tax burden has,however,been negated amid several excise duty escalations on beer that have persisted above projected and actual inflation outcomes,as well as retail price increases.Without retrospective corrections for CPI outcomes,rising excise taxes on beer have

16、 created considerable uncertainty and expense pressures for producers.At the same time,these duties,along with VAT,impair consumer affordability,especially during periods of high inflation.This has been evident over the past three fiscal years when headline CPI inflation accelerated by an average of

17、 6.3%p.a.,notwithstanding that prices of specific basic necessities and inputs costs rose faster than those reflected in overall inflation numbers.Correspondingly,persistent above-inflation increases in duties add additional pain to the beer industry and consumers in challenging macroeconomic and in

18、flationary circumstances.TAXES,INFLATION,AND ECONOMIC GROWTHEconomic growth positively affects government tax revenues,although the relationship between taxes and economic output is more contentious.While taxation can support fiscal stability and the funding of public investments,excessive or poorly

19、 managed taxes that are not strategically reinvested can distort economic activity,discourage investment,reduce disposable incomes,and increase deadweight losses associated with tax collection and administration.High inflation similarly harms economic activity,with consumption-based taxes being more

20、 inflationary than income-based taxes.Therefore,prudent monetary and fiscal policies are needed to manage inflation without stifling economic growth and industrial activity,which includes carefully governing tax burdens.Although beer excise revenues accounted for only 1.1%of South Africas aggregate

21、fiscal income between 2012/13 and 2023/24 on average,elevated duties on the beverage have an outsized adverse influence on the sustainability of the beer value chain,the people employed therein,and the economic activity it supports.Excise revenues from beer have been more responsive to economic grow

22、th than other taxes,with an average buoyancy ratio of 1.8 from 2013/14 to 2023/24 when the distortive impact of the Covid-19 lockdown restrictions is removed.This implies that for every 1%increase in economic growth,excise tax receipts on beer rose by an average of 1.8%.Notwithstanding,excise buoyan

23、cy dropped notably in 2023/24 due to high inflation and weak economic growth,which eroded the inflation-adjusted value of excise revenues and resulted in a negative real excise tax buoyancy ratio.This suggests that sharp increases in excise duties during periods of high inflation and weak economic g

24、rowth can dampen consumption,productive potential,and fiscal receipts.INFLATION AND THE SUPPLY AND DEMAND OF BEERRising input costs,production expenses,supply chain disruptions,and regulatory changes such as increased excise duties drive supply-side inflation with significant impacts on the cost and

25、 availability of manufactured goods.In South Africa,higher excise duties on beer have compounded expenses for beer producers due to the high share of excise payments(i.e.,around 38%)in their total operational costs.This pressure is exacerbated by excise duties rising faster than inflation and most o

26、ther operating expenses for firms in the beer industry.Likewise,above-inflation increases in excise taxes,combined with the addition of VAT,have driven up consumer prices and future expectations thereof.This has,in turn,amplified demand-side inflation,affected consumer spending,and reduced the affor

27、dability of excisable products like beer.Despite increasing nominal household incomes since 2012/13,inflation has outpaced real wage growth,weakening consumer spending power on beer.Higher production costs,excise duties,and inflation in South Africa have increased beer prices substantially,with a 50

28、0ml bottle more than doubling in both price and taxes over the past decade.Rising beer prices have weighed on demand,with beer consumption increasing by a mere 0.8%p.a.on average between 2012/13 and 2023/24 when the disruptive effects of the lockdown restrictions are removed.After constructing a reg

29、ression model to control for varying income levels over the same timeframe,the average price elasticity of demand(PED)for beer in response to the impact of above-inflation price increases on the consumption of the beverage is estimated at-0.88.This indicates that a 1%increase in beer prices above in

30、flation results in a 0.9%decline in demand for the beverage.Compared to previous PED estimations,it further demonstrates that consumers continue to be increasingly sensitive to changes in beer prices and underscores the complex interplay between excise duties,inflation,and consumer behaviour,besides

31、 the unintended consequences of undue tax and price increases when inflation is high.vviOXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High InflationEXCISE DUTIES LEVIED ON BEER IN SOUTH AFRIC

32、ASince 2012/13,excise tax collections from beer have grown significantly,by 159%,to reach ZAR 21.9bn in 2023/24.The beverage represented a share of 34.7%of total excise revenues in 2023/24,the largest of all excisable product categories.As a result,the government is disproportionately reliant on the

33、 beer industry for excise revenues.The trajectory in excise duties on beer has also evolved significantly,often increasing above projected inflation,CPI inflation outcomes,and retail prices,which has led to higher prices for consumers,elevated production expenses,and unpredictability for beer produc

34、ers in the absence of ex-post corrections.Specifically,excise duties on beer rose by 114.6%between 2012/13 and 2023/24(CAGR 7.2%),which was 1.5 times faster on average than the growth rates in both headline and beer CPI inflation of 74.8%(CAGR 5.2%)and 78.3%(CAGR 5.4%),respectively,over the same per

35、iod.Although the governments excise collections from beer have grown remarkably amid above-inflation duty escalations,this approach has begun to show diminishing returns.While nominal excise receipts increased by an average of 9.0%p.a.from 2012/13 to 2023/24,real excise revenues have grown more slow

36、ly by 3.5%p.a.,and rate-adjusted collections by just 1.7%p.a.(i.e.,if historical duties on beer remained constant at current levels).Nominal excise revenues from beer managed to increase by only 2.4%y/y in 2023/24,implying that expectations for higher tax receipts from beer may not materialise.This

37、indicates that persistent above-inflation duty hikes have become less effective over time,leading to reduced responsiveness in fiscal income.Ongoing sharp escalations in duties can adversely affect revenue collections and consumer behaviour,driving some people towards other excisable products or the

38、 illicit alcohol market.South Africas overall tax burden(i.e.,excise duties plus VAT)on beer has risen acutely since 2012/13:by 161.3%(CAGR of 9.1%)to ZAR 33.4bn in 2023/24.Consequently,the share of this burden climbed from a low of 32.0%of WARSP in 2015/16 to 37.8%of WARSP in 2023/24.In other words

39、,South Africas overall tax burden on beer was 2.8 percentage points(ppts)above the previous overall target of 35.0%of WARSP due to sustained above-inflation duty increases and higher VAT(since 2018/19,South Africas VAT rate was raised to 15%).In particular,adjustments to excise duties have raised th

40、e excise tax burden on beer to 24.8%of WARSP in 2023/24,from a low of 19.8%of WARSP in 2015/16.In that regard,the excise burden on beer has continued to trend above the National Treasurys target of 23%of WARSP over the past six years and was 1.8 ppts above that threshold in 2023/24.Put differently,o

41、f every beer bought,24.8%of the final price comprise excise taxes paid into the fiscus,which rises to 37.8%of the retail price when VAT is included.Excise duties on beer have therefore diverged from the officially targeted guidelines,while the overall tax burden has also grown faster than domestic b

42、eer sales,by an annual average of 1 ppt over the past decade,amid above-inflation duty escalations and a higher VAT rate,disproportionately affecting low-income consumers.This trend raises concerns about the impact of excise taxes on beer producers and consumers alike in a high-inflationary environm

43、ent.BENCHMARKING SOUTH AFRICAS EXCISE DUTIES ON BEER TO GLOBAL COMPARATORSFive countries were chosen against which to compare South Africas excise regime:Australia,Canada,Mauritius,Tanzania,and the UK.These countries were selected based on the comparability of their excise regimes,beer industries an

44、d consumption patterns,health policies,and,particularly,data availability to enable the benchmarking analysis.While the excise regimes of the benchmark countries vary in magnitude,method,and complexity,all acknowledge the need to preserve real duties by lifting levies at or near inflation.In practic

45、e,however,the implementation of these regimes has differed.Australia and Canada use automatic CPI indexation to adjust excise duties on beer to actual inflation outcomes,which maintains the real value of these taxes.They have also kept increases in duties below inflation when price pressures are hig

46、h,after which retroactive adjustments ensure that the level of these duties remains aligned with or below long-term CPI inflation trends.In Mauritius,excise taxes on beer are manually altered in response to economic circumstances and often left unchanged,while ex-post increases have maintained dutie

47、s on beer slightly above CPI outcomes.Likewise,the UK modifies excise duties on beer in consideration of economic conditions,public health objectives,and fiscal needs broadly in line with changes in the retail price index(RPI).Even so,the country has often reduced or frozen excise taxes to support c

48、onsumers and industries by allowing a large erosion in real duties.Like South Africa,Tanzania relies on manual adjustments in excise duties on beer based on projected inflation,albeit also in view of the countrys overall economic performance.Tanzania,too,has often left duties unchanged,followed by i

49、nfrequent levies above inflation.Yet,the country has maintained increases in beer taxes notably below past inflation trends.Notwithstanding their different excise regimes,total taxes collected from beer producers by all of the benchmark governments have grown,even in those countries where the real v

50、alue of duties has diminished over time in consideration of inflation outcomes.Since 2012/13,South Africa has endured the most significant upward disparity between beer excise duties and inflation outcomes among the benchmark countries.Without retrospective corrections,idiosyncratic adjustments to d

51、uties based on projected inflation have resulted in sizeable deviations from actual price pressures and amplified CPI expectations,especially in periods of high inflation.Conversely,automatic CPI-indexed mechanisms lead to reliable and predictable changes in excise duties,averting the erosion of rea

52、l duties,fostering policy certainty,promoting trust among the public and private sectors,easing consumer and firm budgeting,and minimising market disruptions.South Africa is highly reliant on the beer industry to augment fiscal receipts from excisable products.By 2023/24,the country depended on the

53、beer industry for 34.7%of total excise revenues,exceeding the respective shares in overall beer excise collections in Tanzania(22.3%),Australia(8.8%),the UK(6.2%),Mauritius(6.1%),and Canada(3.8%).This highlights a heavy concentration on beer duties compared to the other countries more diversified ex

54、cise revenue structures.Moreover,South Africas reliance on beer taxes has grown,contrasting with more stable or declining dependence in the other nations.It is important to support the viability of beer producers by avoiding excessive duty escalations,especially given the feedback loops between manu

55、facturers and the wider economy.Aggressive duty increases in South Africa have far outpaced more moderate changes in the other countries,which has thus far resulted in a relatively faster expansion in excise revenues from beer.However,South Africas excise receipts are unlikely to expand indefinitely

56、 given above-inflation duty increases.The growing gap between nominal and rate-adjusted excise revenues indicates a progressively weak response to duty escalations viiviiiOXFORDE C O N O M IC SAFRICAThe Burden of Unpredictable Excise Taxes and High Inflationversus the benchmark countries,risking lon

57、g-term fiscal stability.South Africa may reach an inflection point in the near future,where the burden of unpredictable duty increases stifles industry growth and exacerbates socio-economic challenges.The government,therefore,needs to consider alternative mechanisms for adjusting excise duties on be

58、er to balance the tax burden and support broader developmental objectives,such as the enhanced excise duty predictability and market certainty offered by the benchmark countries by preserving the level of real duties in consideration of prevailing price pressures.BALANCING THE BRUNT OF THE BURDENSou

59、th Africas excise and overall tax burdens on beer have been significantly higher than those of Australia,Canada,Tanzania,and the UK.Although Mauritius has a higher tax burden on beer,this has declined from previous highs,while Australia,Canada,and the UK have also moderated their beer tax burdens by

60、 keeping increases in beer duties at or below realised inflation.In contrast,South Africas excise and overall tax burdens have expanded much faster than in all the benchmark countries,mostly driven by above-inflation duty escalations.The difference between South Africas excise and overall tax burden

61、 has also widened after the VAT rate was raised by 1 ppts in 2018/19,while this gap has remained constant in the benchmark countries.This suggests that above-inflation excise duty escalations on beer in South Africa without ex-post corrections are not only hampering producers but,along with a wideni

62、ng VAT differential,is also adversely affecting beer consumers.Beer consumption per person has reduced in all of the benchmark countries aside from Mauritius,where tourism plays a role,whereas the corresponding rate of decline has been slower in South Africa.Particularly,per capita beer consumption

63、declined in the comparator states even as their overall tax burdens on beer have eased.In this respect,the benchmark countries are reducing per capita consumption levels despite their tax burdens on beer being relatively lower and their duties rising by less than average inflation outcomes,while gro

64、wing their nominal excise receipts from beer at the same time.It further reveals that South Africas mounting overall tax burden and above-inflation excise levies on beer may not be the primary mechanism to reduce excessive alcohol use.In light of the findings throughout this study,the National Treas

65、ury should consider adjusting its excise regime on beer to better support the excise principles that it purports,the interactions that beer producers and consumers have with the broader macroeconomic environment,and the long term-impact on fiscal receipts.This can be achieved by moving from a guidel

66、ine-targeted beer taxation regime to a structured framework for governing excise duty escalations that promotes more predictable excise taxes,especially in periods of high inflation.Market certainty on the supply and demand sides of the economy can be improved by automatically indexing excise duties

67、 on beer to inflation outcomes of the previous fiscal year as opposed to manual amendments in response to anticipated retail prices for beer or expected CPI inflation.This excise adjustment framework should also accommodate for fluctuations in economic growth,meaning that increases in excise duties

68、on beer can be kept below inflation when price pressures are high and be raised ex-post to maintain duty neutrality.An alternative,albeit less conducive,consideration is to raise excise duties according to projected inflation,but to correct ensuing increases in duties if anticipated price pressures

69、are not realised in practice.ixxTO BALANCE THE BRUNT OF THE BURDEN Government should strive to limit deviations from the excise burden target as per National Treasurys guidelines.Automatically index excise duties on beer to actual CPI outcomes as opposed to projected inflation or anticipated retail

70、prices for beer.Adjust excise duties on beer below CPI inflation outcomes when price pressures are high&make ex-post corrections to maintain duty neutrality.THE WAY FORWARD FOR THE EXCISE REGIME ON BEER IN SOUTH AFRICANational Treasury should consider adjusting its excise regime on beer to better su

71、pport the excise principles that it purports,the interactions that beer producers and consumers have with the broader macroeconomic environment,and the long-term impact of fiscal receipts.This can be achieved by moving from a guideline-targeted beer taxation regime to a structured framework for gove

72、rning excise duty escalations that promotes more predictable excise taxes,especially in periods of high inflation.THE BURDEN OF UNPREDICTABLE EXCISE TAXES&HIGH INFLATION ON BEER IN SOUTH AFRICACOMPARED TO THE BENCHMARK COUNTRIES,SOUTH AFRICAS TAX BURDEN ON BEER IS RISING FASTER,WHILE EXCISE REVENUES

73、 ARE SLOWINGSOUTH AFRICAS TAX BURDEN ON BEER HAS INCREASED&IS ABOVE GOVERNMENTS THRESHOLDS AS PER NATIONAL TREASURYS GUIDELINESBEER PRODUCERS FACE RISING COSTS&TAX BURDENS,WHILE CONSUMERS ENDURE HIGHER PRICES&AN EROSION OF REAL INCOMESNote:South Africas tax burdens on beer were calculated using reta

74、il prices for beer supplied by SAB,which also provided the remaining cost composition in the final beer price.(Before overheads,depreciation,amortization and corporate tax)Note:*Beer VAT+excise duties.*Excise duties only.*In 2015/16 targeted tax burden was changed from VAT+excise,to excise duties on

75、ly as a%of weighted average retail sales prices.As a%of weighted average retail prices of beer:Excise burden persists above National Treasurys guideline target,while the overall tax burden on beer also remains above the previous target for excise duties plus VAT.This may accelerate diminishing retur

76、ns on beer excise receipts observed more recently.23%Government excise tax burden target35%Previous overall(excise+VAT)tax burden targetSupply-side inflationExcise dutiesOverall tax burden on beer33%20%10%38%25%Production CostsProducer MarginRetail MarginActual overall tax burdenActual excise tax bu

77、rden20 16/1720 17/1820 18/1920 19/2020 20/2120 12/1320 13/1420 14/1520 15/1620 21/2220 22/2320 23/2420 24/2545-40-35-30-25-20-15-10-5-0-%Share weightedaverage retail priceOverall tax burden*Excise revenues burden*Guideline target tax burden*Demand-side inflationVATExcise duties+VATWeighted average r

78、etail pricesReduces consumer affordabilityRising costs&expenses for beer producersSouthAfricaTanzaniaAustraliaUnitedKingdomMauritiusCanada35-30-25-20-15-10-5-0-%Share(2023/24)Beer excise share in total excise revenuesSouthAfricaTanzaniaAustraliaUnitedKingdomMauritiusCanada8-6-4-2-0-%p.a.(2012/13-202

79、3/24)CPI InflationBeer excise duty growthSouthAfricaTanzaniaAustraliaUnitedKingdomMauritiusCanada50-45-40-35-30-25-20-15-10-5-0-%share weightedaverage retail sales(2023/24)Overall tax burdenExcise tax burdenThe benchmark countries are enlarging excise revenues from beer even as their tax burdens are

80、 diminishing.Conversely,South Africas beer excise revenues are progressively less responsive to the degree of duty increases.South Africas tax burden on beer has increased&remains above National Treasurys guidelines,driven by sustained above-inflation excise duty escalationsSouth Africas excise&over

81、all tax burdens on beer continue to rise,despite already being high compared to most benchmark countries.South Africa is significantly more reliant on excise from beer compared to the benchmark countries.The increase in South Africas excise duties on beer has been unpredictable&consistently exceeded

82、 inflation,in contrast to the benchmark countries where duty escalations have been more moderate,in line with or below inflation.OXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High Inflation1.

83、INTRODUCTIONAn excise tax is any duty levied on manufactured goods at the moment of production rather than upon the sale of the products.The main function of these taxes is to ensure a constant stream of fiscal revenue while discouraging the consumption of goods with negative externalities by intern

84、alising the external costs associated with using or producing excisable products.Regardless,higher excise taxes increase consumer costs and subsequently market inflation by raising expenses for beer producers if such duties are not adjusted in consideration of macroeconomic circumstances.South Afric

85、as excise regime on beer is governed through the annual budget process.While this regime has undergone changes since 1994/95,the current excise system has its roots in the National Treasurys 2014 excise policy discussion document,which reviewed the taxation of alcoholic beverages in the country from

86、 the excise targets set out in 2002(National Treasury,2014).The government imposes an alcoholic-content-based specific excise on beer production.This duty,in addition to value-added tax(VAT),comprises the overall tax burden that is passed on to consumers in the final retail price of beer.Annual adju

87、stments in beer excise duties are calculated based on tax burdens derived from projected retail prices for the next fiscal year or the expected consumer price index(CPI)inflation rate,whichever is higher.In doing so,the government aims to maintain the total tax burden by raising beer duties towards

88、the official excise target of 23%of weighted average retail sales prices(WARSP).The government has,however,frequently increased excise duties on beer beyond projected and actual inflation outcomes without any ex-post corrections if realised price pressures are lower.Consequently,the principle of mai

89、ntaining the total tax burden may have been negated through above-inflation escalations in beer excise duties.In turn,these duties and VAT can increase the overall tax burden on beer above the targeted tax incidence amid greater inflation expectations,while adversely affecting producers and consumer

90、s alike by driving up this burden beyond levels informed by price pressures in practice.Moreover,manual excise adjustments in anticipation of foreseen CPI inflation and/or retail prices without retrospective corrections have created significant uncertainty for beer producers.Persistent above-inflati

91、on increases in duties also runs the risk of reaching a point where excisable income from beer becomes less responsive to the level of duties imposed.To garner additional insight into unpredictable excise taxes and high inflation,the South African Breweries(SAB)commissioned Oxford Economics Africa t

92、o assess how excise tax increases have adversely affected beer producers and consumers in South Africas historically high inflation and low growth environment since 2012/13.The evaluation further considers the officially targeted tax burden and compares the performance of South Africas excise regime

93、 against that of key international benchmark countries.In doing so,this report is structured into six chapters.Chapter 1 introduced the study.Chapter 2 unpacks the effects of cost-push inflation on the supply side of the economy,including on beer manufacturing and investment.It similarly outlines th

94、e repercussions of inflation on the demand for beer,considering household disposable incomes and spending patterns.Chapter 3 describes the interplay of taxes,inflation,and economic growth in high-inflationary environments.It also determines South Africas total and excise tax buoyancy on beer and est

95、imates the countrys consumer price elasticity of demand(PED)for beer.Chapter 4 investigates excise duties and revenues in South Africa by dissecting fiscal receipts from excisable products and analysing the evolution of duties on beer while accounting for projected and actual inflation.Subsequently,

96、the responsiveness of excise payments and beer consumption to above-inflation duty escalations are assessed in addition to evaluating the tax burden on beer against the governments targets.Chapter 5 benchmarks South Africas excise duties,receipts,and tax burdens on beer relative to those of Australi

97、a,Canada,Mauritius,Tanzania,and the UK.The chapter compares South Africa to the benchmark countries on their excise duty practices and fiscal receipts versus CPI inflation outcomes,as well as their excise and overall tax burdens against beer consumption and excise payments per capita.Chapter 6 concl

98、udes the study.12OXFORDE CONOMI CSAFRICA4The Burden of Unpredictable Excise Taxes and High Inflation2.INFLATION AND THE SUPPLY AND DEMAND OF BEER2.1 EFFECTS OF INFLATION ON THE SUPPLY OF BEERSupply-side inflation,or cost-push inflation,occurs when the market supply of goods and services declines,abs

99、ent a decrease in the demand for these goods and services,which can result from higher production costs,supply chain disruptions,and/or regulatory changes(Pasimeni,2022;Charaia&Papava,2023).Production costs are determined by the inputs embedded in the manufacturing process.Higher raw material,labour

100、,inputs,and energy prices increase production costs and are critical drivers of supply-side inflation(Shapiro,2024).Similarly,regulatory changes in the form of taxes,new regulations,or additional quality controls also increase supply-side inflation by raising manufacturing expenses.On the other hand

101、,supply chain disruptions reduce input goods availability and increase the cost of these inputs,adding to inflationary pressures(Stiglitz&Regmi,2022).These supply chain disruptions can occur in various stages of the production process,ranging from the initial sourcing of inputs to the delivery of th

102、e final product to retailers.Ultimately,this increases production costs and decreases the supply of manufactured products,leading to higher supply-side inflation(Konczal,2023).High supply-side inflation signals that production costs are rising excessively,ultimately squeezing manufacturers and reduc

103、ing goods production.Higher inflation forces firms to increase sales,while the lower number of goods produced raises prices further(Pasimeni,2022).Moreover,cost-cutting measures to lower the impact of supply-side inflation risks reducing the quality of goods produced.Higher production costs adversel

104、y affect firms profits,wages,and economic output,leading to lower productive activity.High supply-side inflation could discourage new firms from entering the market,stifling economic growth and employment prospects(Nowzohour&Stracca,2017).Ultimately,supply-side inflation filters through to the end c

105、onsumer,raising prices throughout the economy.2.1.1 EXCISE DUTIES AND COST-PUSH INFLATIONSouth Africas excise duties on beer are governed through the annual budget process,with the current excise regime having its roots in the National Treasurys 2014 excise policy discussion document,which reviewed

106、the taxation of alcoholic beverages.The South African government imposes an alcoholic-content-based specific excise tax on beer production as a fixed percentage of the beverages retail selling price(WARSP).In this respect,the government levies and raises excise duties on beer in the national budget

107、in South African rands(ZAR)per litre of absolute alcohol(LAA),meaning that higher alcohol content products are taxed at a higher rate compared to lower alcohol content products(National Treasury,2014).Annual adjustments in beer excise duties are calculated based on tax burdens derived from projected

108、 retail prices for the next fiscal year or the expected CPI inflation rate,whichever is higher1.The government aims to maintain the total tax burden by raising beer duties towards official targets as per the National Treasurys guidelines.These targets were last 1 If beer prices rise faster than CPI

109、inflation,in principle excise taxes increase with beer prices(i.e.,positive real excise tax).If CPI inflation outpaces retail beer prices,excise taxes are adjusted using CPI inflation(i.e.,neutral real excise duty).3OXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excis

110、e Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High Inflation0246810121416CPI inflationPPI inflationCPI beer sub-indexPPI beverages sub-index%20132014201520162017201820192020202120222023Figure 1:Inflation in the beer price sub-index has trended below CPI and PPI inflationSour

111、ces:StatsSA,Oxford Economics Africamodified in 2014/15,when the overall tax burden on beer was changed from 35%of WARSP in excise duties plus VAT to the current excise tax burden target of 23%of WARSP in excise duties only(National Treasury,2014).Excise duties,in addition to VAT,comprise the overall

112、 tax burden that is passed on to consumers in the final price of beer,while adding to the inflationary pressures faced by beer producers(refer to Chapter 4).Ultimately,higher excise taxes may increase consumer costs and market inflation(Mozdzierz,2017).South Africas current excise duty structure has

113、 three major flaws.Firstly,tax adjustments are made using inflation expectations and are not corrected retroactively if expectations exceed reality.Secondly,since the annual excise tax adjustments depend on retail beer price movements or CPI inflation,beer manufacturers have a limited influence in m

114、itigating these tax increases.Finally,excise taxes may be shifted to consumers,which negatively affects affordability to the degree to which these taxes are translated into higher retail prices(Russel&van Walbeek,2016).Excise taxes levied during the production process directly impact supply-side inf

115、lation(Customs and Excise Act 91 of 1964).Cost-push inflation is best represented by the PPI,which indexes price changes in domestically produced goods between different periods.Figure 1 shows the historical PPI,CPI,and beer CPI price inflation movements from 2013 to 2023.During this period,PPI infl

116、ation on manufactured goods averaged 6.3%per annum(p.a.),exceeding CPI inflation,recorded at 5.2%p.a.from 2012 to 2023.During the same period,PPI inflation in the beverages sub-index averaged only 4.2%p.a.,which was the lowest in the PPI basket of items.Non-metallic minerals3,4%Metals,macinery&compu

117、ting14,7%Electrical,communication&metering3,2%Transport9,1%Furniture&othermanufacturing2,5%Textiles,clothing&footwear4,8%Paper&Print8,4%Food,beverages&tobacco33,5%Coke,petroleum,chemical,rubber&plastic20,2%Figure 2:The weights of the PPI categories have remained about the same from 2012 to 2023Sourc

118、es:StatsSA,Oxford Economics AfricaPPI consists of various sub-indices as presented in Figure 2.The largest sub-index between 2012 and 2023 were food,beverages,and tobacco products(weighting of 33.5%),with beverages alone having a 7.6%weight in the overall PPI basket.Consequently,beverage products ca

119、rry more weight than many other sub-indices and accounted for 0.3 ppt of total PPI inflation between 2012 and 2023.2.1.2 IMPLICATIONS OF SUPPLY-SIDE INFLATION FOR MANUFACTURING AND INVESTMENTInflation has a marked impact on South Africas manufacturing sector,including the beer industry.High inflatio

120、n erodes consumer spending power,meaning fewer goods and services are purchased and reducing economic output.During periods of high inflation,labour and operational costs rise notably,increasing manufacturing costs.Furthermore,elevated inflation shapes expectations of future prices.This creates a fe

121、edback loop and self-fulfilling prophecy with high inflation expectations begetting high inflation(Richards&Verstraet,2016).In turn,it reduces economic activity and can result in the scaling back of business operations and potentially job layoffs(Stiglitz&Regmi,2022).High inflation has a detrimental

122、 impact on business confidence and investment in the manufacturing sector,including the beer industry.Declining sales and revenues stifle industrial growth,production,and employment,ultimately reducing output growth in the sector and the broader economy(Kilci,2020).Moreover,due to market uncertainty

123、 and cost-cutting measures,firms tend to hold back on new investments and innovations,potentially leading to stagnation in the sector and a loss of international competitiveness(Nowzohour&Stracca,2017).Figure 3 shows how the purchasing managers index(PMI)and PPI inflation have fluctuated over the pa

124、st decade.The PMI measures production changes in the domestic manufacturing and services sectors.A PMI print above 50 points indicates an expanding manufacturing or services sector,whereas a PMI below 50 points indicates that private sector activity contracted.There is an inverse relationship betwee

125、n PMI and PPI inflation.Stubbornly high inflation necessitates interest rate hikes,which increases operational costs,raises debt servicing fees,and worsens business sentiments(Nowzohour&Stracca,2017).This relationship is robust in the beer industry,where rising input costs,higher excise duties,and i

126、nterest rates can adversely affect investment and commercial expansion activities.56OXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High Inflation0102030405060708090100024681012141618pts%y/y201

127、4-Q12015-Q12016-Q12017-Q12018-Q12019-Q12020-Q12021-Q12022-Q12023-Q12023-Q12024-Q1PPI inflation(LHS)Headline PMI(RHS)Figure 3:Investor confidence and private sector activity improve when PPI inflation is lowSources:StatsSA,BER,Oxford Economics Africa-20-15-10-50510152025303520132014201520162017201820

128、192020202120222023WaterElectricityGrainGlassPaper&printedPetrol pricesUnit labour costs%Figure 4:Rising input cost pressures remain pronounced in the beer sectorSources:StatsSA,Oxford Economics Africa2.2 EFFECTS OF INFLATION ON THE DEMAND FOR BEERDemand-side inflation,or demand-pull inflation,occurs

129、 when consumer demand for goods and services increases faster than the market supply of the same goods and services.This,in turn,allow firms to raise prices above equilibrium levels as consumers are willing to pay more to secure a limited amount of goods and services available.Three fundamental caus

130、es of high demand-side inflation are expansionary fiscal policy,dovish monetary policy,and greater consumer spending(Stiglitz&Regmi,2022).Expansionary fiscal policy occurs when governments increase public spending or cut taxes,which spurs the demand for goods and bolsters short-term economic growth(

131、Baqaee et al.,2023).However,prices will rise without a corresponding increase in the supply of goods,leading to higher demand-Inventories25,2%Excise duties37,9%Employees9,9%Depreciation6,2%Royalties1,4%Management fees3,4%Repairs&maintenance1,3%Other expenses2,8%Sales,marketing&distribution12,0%Figur

132、e 5:Excise duties have a disproportionate share in beer producers expensesSource:Oxford Economics AfricaWhile inflation has a bearing on consumer and business activities throughout the economy,different sectors are asymmetrically affected.Considering the food and beverages sector,high inflation dist

133、orts consumption patterns and alters preferences.Rising costs,inflation,and taxes have reduced household purchasing power over time and consequently increased the price elasticity of demand for beer(refer to Chapter 3),shifting consumption patterns for the beverage(Macedo et al.,2020).Ultimately,dur

134、ing periods of high inflation and excise duty escalations,both consumers and producers of beer are adversely impacted to the detriment of the whole economy(Pasimeni,2022).Beer manufacturers are inextricably linked with various industries in the South African economy.Consequently,price fluctuations i

135、n these industries affect costs and inflation for beer producers.Figure 4 details the price movements in the PPI sub-indices associated with beer production,most of which have outpaced headline PPI inflation.Between 2013 and 2023,electricity and water prices rose sharply,by an average of 10.5%p.a.an

136、d 8.8%p.a.,respectively.The price increases in other input products like grains(7.0%p.a.),paper and print(6.9%p.a.),and coal and petroleum(7.2%p.a.)also trended above the PPI inflation average of 6.3%p.a.over the same period.Rising glass prices(6.0%p.a.)and manufacturing unit labour costs(4.9%p.a.)e

137、xperienced more moderate inflation than the other input items.Nevertheless,these price increases remain high compared with the CPI and demand-side inflation(refer to Section 2.2).Figure 5 displays the typical composition of expense pressures facing a beer producer in South Africa.At 37.9%,excise dut

138、ies represent an outsized portion of net operating expenses,exceeding the combined spending on inventories(25.2%)and sales,marketing,and distribution(12.0%),which are the next highest expenditures.This pressure is exacerbated by excise duties rising faster than inflation and most other operating exp

139、enses of firms in the industry.Because excise taxes are levied during the production process and are among the largest outlays for beer producers,they directly impact supply-side inflation.Furthermore,in South Africa,excise taxes on beer are calculated using projected CPI and anticipated retail beer

140、 prices,making demand-side factors and inflation vital considerations in the cost-and inflationary dynamics of the beverage.78OXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High Inflationside

141、inflation.Secondly,dovish monetary policy,in the form of lower interest rates or an increase in money supplies,reduces borrowing costs and thereby spurs consumers to buy more goods,which leads to higher demand side inflation barring a similar rise in goods supplied(Jain et al.,2022).Additional cause

142、s of demand-pull inflation include technological innovation,marketing strategies,brand loyalty,and structural changes to economic growth.High demand-side inflation may lead to short-term gains in economic activity and growth;however,if left unchecked,it risks overheating the economy,creating out-of-

143、control inflation(Shapiro,2024).Consequently,during periods of excess demand-side inflation,central banks typically hike interest rates to bring consumer demand and market supply back into check(Stiglitz&Regmi,2022).As with high supply-side inflation,rising demand-push inflation squeezes consumers t

144、hrough rising prices,which erodes the real purchasing power of their money(Schwarzer,2018).This could alter consumer preferences and reduce demand for certain goods,such as excisable products(Bajaj&Mangin,2024).Demand-side inflation is best represented by the CPI,which indexes the change in prices c

145、onsumers pay for goods and services.Figure 6 shows how CPI inflation and interest rates in South Africa evolved from 2012 to 2024.The South African Reserve Bank(SARB)targets inflation between 3%and 6%,the lower and upper bands,with 4.5%being the midway point.Between 2012 and 2023,CPI inflation avera

146、ged 5.2%p.a.and has often necessitated interest rate hikes to rein in inflation.After the coronavirus-induced economic downturn,CPI inflation rose from an average of 4.5%in 2021 to 6.9%in 2022.Consequently,the SARB progressively raised interest rates from 3.5%in 2021 to 8.25%by mid-2023(the repo rat

147、e was 8.0%in September 2024),increasing borrowing costs,softening consumer demand,and cooling the economy.Inflation dropped to an average of 5.9%in 2023 and continues to trend lower in 2024(CPI inflation was 4.4%y/y in August 2024).Still,high CPI inflation remains a concern,while elevated debt repay

148、ment and operational costs,along with declining consumer spending,adversely impact manufacturers by reducing profits and potential output(Manasseh,2018).01234567892012-Q12013-Q12014-Q12015-Q12016-Q12017-Q12018-Q12019-Q12020-Q12021-Q12022-Q12023-Q12024-Q1CPI inflation(%y/y)Repo rate(%)Upperband Lower

149、band Figure 6:Above target inflation may necessitate monetary policy action by the SARB,withhigh interest rates squeezing consumers and producers alikeSources:StatsSA,SARBThe CPI consists of various sub-indices,each carrying different weights depending on their relative contribution to inflation.Fig

150、ure 7 details the 12 CPI sub-indices relative contribution to headline inflation between 2012 and 2023.Over this period,alcoholic beverages contributed 0.2 ppts to headline CPI inflation.Although alcoholic beverages represent only 4%of the overall CPI basket,beers weighting of 2.2%is far larger than

151、 those of other alcoholic beverages.Nevertheless,the alcoholic beverages sub-index is bigger than several other key sub-indices,meaning that fluctuations in alcohol prices have a substantial impact on headline inflation in South Africa.While inflation in the other alcoholic beverages sub-indices(6.2

152、%p.a.)outpaced that of beer(5.5%p.a.),all had a faster acceleration in prices relative to the headline CPI print of 5.2%p.a.from 2012 to 2023.2.2.1 EFFECTS OF INFLATION ON HOUSEHOLD DISPOSABLE INCOMES AND SPENDING PATTERNSAccording to StatsSA,in 2023,the wealthiest 10%of households spent more than Z

153、AR 312,200 monthly,accounting for 45.3%of total consumer spending in South Africa.Households in the poorest decile spent around ZAR 20,100 monthly,representing 0.9%of consumer spending in the country.The highly skewed income and spending patterns in South Africa result in a situation where the wealt

154、hiest 20%of households account for 61.4%of all consumer spending,while the poorest 80%form the remaining 38.6%.Consumer spending patterns vary notably between the different expenditure deciles.Poorer households spend much of their income on basic necessities and,consequently,they are more vulnerable

155、 to price changes and inflation,as there are few alternatives for essentials like food and transport(Chai et al.,2014;Bentley,2016).Figure 8 details the inflation level experienced per expenditure decile relative to total consumer spending.Although national CPI inflation averaged 5.2%p.a.from 2013 t

156、o 2023,the two poorest deciles experienced inflation of 5.8%p.a.While spending patterns differ markedly between income groups,outlays on alcoholic beverages and tobacco remains fairly consistent,with the bottom decile spending 4%of its income on this sub-index and the top decile spending 6%.-1012345

157、678920132014201520162017201820192020202120222023Food&non-alcoholic beveragesAlcoholic beverages&tobaccoClothing&footwearHousing&utilitiesHousehold contents&equipmentHealthTransportCommunicationRecreation&cultureEducationRestaurants&hotelsMiscellaneouspptsFigure 7:CPI basket items relative contributi

158、on to annual inflation Sources:StatsSA,Oxford Economics Africa910OXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High Inflation05101520253035404550D1D2D3D4D5D6D7D8D9D104,04,24,44,64,85,05,25,45

159、,65,86,0Average inflation(LHS,2013-2023)Proportion in total consumer spending(RHS)%p.a.%Figure 8:Inflation in the poorest expenditure deciles is markedly higher than in richer decilesSources:StatsSA,Oxford Economics AfricaFigure 9 shows the evolution of real,nominal,and CPI-adjusted nominal househol

160、d personal disposable income between 2012 and 2023.Nominal income is the average earnings households receive each year,whereas real income accounts for inflation,with a base year of 2012.CPI-adjusted nominal household income is a measure of what nominal earnings should have been to keep up with infl

161、ation.Since 2012,nominal disposable income expanded by an average of 4.4%p.a.(60%in total)to ZAR 248,630 in 2023.However,considering the impact of inflation,household income declined by an average of 0.6%p.a.(6.2%in total)in real terms over the same period.In other words,nominal disposable income sh

162、ould have increased to ZAR 271,840 in 2023,or an additional ZAR 23,210 per household,to have kept up with price pressures and maintain consumers purchasing power.-50050100150200250300201220132014201520162017201820192020202120222023Inflation differentialNominal incomeReal incomeNominal income,CPI adj

163、ustedZAR 000Figure 9:Disposable income growth remains weak and struggles to keep pace with inflationSources:StatsSA,Oxford Economics AfricaHigh inflation,therefore,has a markedly negative impact on disposable income and spending.It reduces real wages and incomes,erodes consumer expenditure and house

164、hold buying power,and shifts consumption patterns along with the impact of higher excise duties(refer to Section 2.1).Considering the interplay between inflation and expenditure,real household spending decreased by an average of 1.0%p.a.from 2012 to ZAR 143,400 in 2023,despite nominal spending havin

165、g increased by 3.9%p.a.to ZAR 244,550 over the same timeframe.This suggests that consumer spending should have averaged ZAR 281,500 in 2023,or ZAR 37,000 more per household,to have kept pace with inflation.Consumer spending on alcoholic beverages specifically had to be ZAR 11,333 per year by 2023,or

166、 ZAR 1,255 higher per household on average,to have remained in step with inflation.While the lockdown limitations during the Covid-19 pandemic had a detrimental impact on alcoholic beverage industries,inflation and excise duties compounded these disruptive effects.Between 2012 and 2023,average spend

167、ing alcoholic beverages represented 4%of total consumption spending per adult,of which outlays on beer represented 3.3%.Following a rebound in alcohol consumption after the lockdowns associated with the Covid-19 pandemic ended,spending by individual adults on beer declined by 2.6%in 2022/23.Overall,

168、supply-side inflation and excise duties increases costs and expenses for beer producers,while demand-side inflation and VAT reduces consumer affordability and erodes real incomes amid the high cost of living in South Africa.1112OXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High

169、 Inflation3.THE NEXUS OF TAXES,INFLATION,AND ECONOMIC GROWTH3.1 INTERACTIONS BETWEEN EXCISE TAXES,INFLATION,AND MACROECONOMIC GROWTHEconomic growth positively impacts taxes,with income taxes being more closely correlated to growth than excise taxes,as shown in Figure 10.Higher real growth in gross d

170、omestic product(GDP)improves consumer spending,business profits,and economic activity.As an economy grows,its tax base expands,increasing the total fiscal revenues collected by the government.While there is consensus on the impact of economic growth on taxes,there is still some debate about the inve

171、rse:the impact of taxes on economic growth,especially if the fiscal receipts are not productively and structurally re-invested back into the economy(Riba,2016).Taxes,including excise duties,can distort economic activity,discourage investments,reduce disposable incomes and consumption spending,and sh

172、ift consumer preferences(Riba,2016;Stoilova,2017).They also increase deadweight losses associated with tax collection and administration,meaning that total fiscal expenditures will be less than the collected taxes,reducing overall economic output(Zellner&Ngoie,2015;Aghion et al.,2016;Khumbuzile&Khob

173、ai,2018).Even so,taxes allow for fiscal stability and a strong state,while fiscal receipts used for public investments into infrastructure,healthcare,and education benefit society with positive economic spillovers(Brys et al.,2016).Taxes could help to correct markets,reducing negative externalities

174、in the economy and promoting more efficient use of resources(Riba,2016).While taxations distortionary impact and deadweight loss remain unavoidable,its potential economic growth benefits depend on country-specific economic contexts,prevailing tax rates,and related taxation structures.-30-20-10010203

175、04020132014201520162017201820192020202120222023Income tax revenue growthNominal GDP growthExcise tax revenue growth%Figure 10:Government tax receipts and economic growth in South AfricaSources:StatsSA,Oxford Economics Africa1413OXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredi

176、ctable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High InflationFigure 11 indicates that there is also an inverse relationship between inflation and economic growth.As described in Chapter 2,price increases and inflation erode purchasing powers,reduce real consumptio

177、n spending,and stifle investments.High inflation increases input and production costs,weakens purchasing power,and decreases consumer spending(Akinsalo&Odhiambo,2017).This reduces firm profits,restrains new investments,and weakens economic activity.Studies have shown that a one percent increase in C

178、PI inflation is associated with a 0.45 ppt reduction in economic growth in South Africa(Sekwati&Dagume,2023).These adverse effects are amplified amid higher overall tax burdens being passed on to consumers.Negative inflation,or deflation,is also detrimental to economic growth.During periods of defla

179、tion or a deflationary spiral,falling prices prompt consumers and investors to delay purchases and investments in anticipation of lower future prices.Falling prices and consumer spending create a self-fulfilling prophecy which reduces business revenue,investment activity,and economic growth(Kesha,20

180、16).Furthermore,during deflationary spirals,real debt repayment costs rise while unemployment increases,worsening macroeconomic conditions(Munyeka,2014).Ultimately,low inflation levels are conducive to sustained real GDP growth,private sector expansion,employment,and consumer spending(Leonid&Andrey,

181、2019).Sustained increases in long-term output can only occur in stable,predictable,and low-inflationary environments(Akinsola&Odhiambo,2017).There is no consensus on the optimal inflation threshold,although advanced economies prefer inflation closer to 2%,while developing countries have higher targe

182、ts(i.e.,3%to 6%in South Africa).While economic growth causes some inflation,higher growth does not necessarily cause faster inflation or vice versa(Ryska,2017).If a countrys economic growth exceeds its output potential,inflation will rise as the economy overheats.Conversely,if economic growth drops

183、below potential,other things being equal,inflation will decline as firms reduce prices to encourage spending.-8-6-4-20246820132014201520162017201820192020202120222023CPI inflationReal GDP growth%Figure 11:South Africa is plagued by high inflation and weak economic growthSources:StatsSA,Oxford Econom

184、ics Africa0123456780,00,20,40,60,81,01,21,41,61,82,020132014201520162017201820192020202120222023Other tax(LHS)Income tax(LHS)Excise tax(LHS)Corporate income tax(LHS)VAT(LHS)Excise tax(RHS)Beer excise tax(RHS)ZAR trn%of revenues Figure 12:Excise taxes have a small share in total fiscal income,but a w

185、ide economic reachSources:StatsSA,National Treasury,Oxford Economics AfricaThe relationship between taxes and inflation is bidirectional.Imposing new taxes or increasing existing tax rates raises inflation(Mozdzierz,2017).Consumption-based or indirect taxes,such as excise duties,are more inflationar

186、y than income-based taxes due to their direct impact on the final price of goods and services(Romer&Romer,2010).Inflation can also raise taxes by pushing income earners into higher tax brackets(i.e.,bracket creep).Nevertheless,inflation generally increases tax collections but reduces the real value

187、of these taxes(Elshqirat,2024).Lastly,inflation erodes the value of money and serves as an additional levy called“inflation tax”(Anbarci et al.,2015).Excise taxes have a similar relationship with economic growth and inflation,although the associated deadweight loss can be more pronounced than other

188、taxes(Anbarci et al.,2015).Since the South African government adjusts excise duties on beer by projected CPI inflation of anticipated retail prices,whichever is highest,these indirect taxes raise costs above market-based prices and consequently drive excess inflationary pressures(Russel&Van Walbeek,

189、2017).Figure 12 indicates South Africas main sources of fiscal income.Over the past decade,total excise tax receipts accounted for 4.6%of aggregate fiscal revenues,while excise duties on beer averaged 1.1%.Despite having a fairly small share in overall government revenues,elevated beer duties have a

190、n outsized adverse influence on the sustainability of the beer value chain,the people employed therein,and the economic activity it supports.Sharp increases in excise taxes during periods of high inflation and weak economic growth can dampen consumption,investment,productive potential,and job creati

191、on.1516OXFORDE CONOMI CSAFRICA18The Burden of Unpredictable Excise Taxes and High InflationOXFORDE C O N O M IC SAFRICAThe Burden of Unpredictable Excise Taxes and High InflationFigure 15 indicates the tax buoyancy ratios of total excise revenues from beer versus excise taxes for other alcoholic bev

192、erages from 2013/14 to 2023/24.Over this period,the excise tax buoyancy of beer averaged 3.5(or 1.8 when excluding 2020/21),which was above the overall excise tax buoyancy and that of other alcoholic beverages of 3.1(or 2.0 when excluding 2020/21).Excise taxes on alcoholic beverages are therefore hi

193、ghly responsive to changes in economic growth,with beer being the most responsive.2013/142014/152015/162016/172017/182018/192019/202020/212021/222022/232023/24-8-404812162024Economic growth(real)Tax revenue growth(nominal)%Figure 13:Nominal tax revenue growth has exceeded real GDP growth over the pa

194、st decadeSources:StatsSA,National Treasury,Oxford Economics Africa051015202013/142014/152015/162016/172017/182018/192019/202020/212021/222022/232023/24Overall tax bouyancyExcise tax buoyancyRatio Figure 14:Excise tax buoyancy has exceeded the buoyancy ratio of total tax receipts since 2018Sources:St

195、atsSA,National Treasury,Oxford Economics Africa-2024681012141618202013/142014/152015/162016/172017/182018/192019/202020/212021/222022/232023/24All alcoholic beveragesBeerOther alcoholic beveragesratio Figure 15:Excise tax buoyancy of alcoholic beverages is highly responsive to economic growthSources

196、:StatsSA,National Treasury,Oxford Economics Africa3.2 SOUTH AFRICAS TAX BUOYANCYTax buoyancy is the sensitivity of tax revenues to economic growth.It is estimated by comparing the percentage change in tax revenues to the GDP growth rate(Mandela&Olukuru,2016).Figure 13 compares South Africas real GDP

197、 and tax revenue trends between 2013/14 and 2023/24.Generally,there is a positive relationship between economic growth and tax revenues,with fiscal receipts rising faster in a growing economy and vice versa.Figure 14 demonstrates that excise tax buoyancy ratios are much higher than those of total ta

198、x revenues in South Africa.Between 2013/14 and 2023/24,excise tax buoyancy averaged 3.3,which declines to 1.5 when the disruptive effects of the Covid-19 lockdown restrictions in 2020/21 are removed.Therefore,for every 1%increase in economic growth,excise taxes rose by an average of 3.3%(or 1.5%in n

199、on-outlier years),which suggests that excise taxes are highly responsive to changes in economic growth compared to other taxes in South Africa.In 2023/24,though,excise tax buoyancy dropped notably,indicating that excise tax receipts became less responsive to changes in economic growth.This can large

200、ly be ascribed to high inflation and weak growth.Nominal excise taxes rose marginally in 2023/24;however,sharply rising inflation eroded the real value of these revenues.In real terms,excise tax receipts declined while real GDP growth expanded by a muted 0.7%in 2023,compared with 1.9%in 2022.This re

201、sulted in a negative real excise tax buoyancy rate,demonstrating the tenuous relationship between excise taxes and economic growth.It further suggests that sharp escalations in excise duties can weigh on producers and consumers of alcoholic beverages,thereby contributing to lower fiscal revenue rece

202、ipts from these products during periods of high inflation and slow economic growth.3.3 CONSUMER PRICE ELASTICITY OF DEMAND FOR BEERHigher production costs,excise duties,and inflation put notable upward pressure on beer prices.Figure 16 plots the evolution of the average price of a 500ml bottle of be

203、er in South Africa2.Beer prices,exclusive of VAT and excise(i.e.,WARSP),rose to ZAR 8.00 per 500ml in 2023/24,from ZAR 3.90 per 500ml in 2012/13.Over the same timeframe per 500ml of beer,VAT doubled to ZAR 1.70,from ZAR 0.80,while excise duties on the beverage more than doubled to ZAR 3.20,from ZAR

204、1.50.These indirect taxes exacerbate price pressures on beer,with the final average retail price of a 500ml beer rising to ZAR 12.80 in 2023/24,from ZAR 6.20 in 2012/13.Given the pass-through of increased excise duties into retail prices,consumer budgets become strained,and the demand for excisable

205、goods,therefore,increasingly depressed.2 South Africas retail prices for beer were supplied by SAB.17OXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationOXFORDE C O N O M IC SAFRICA19The Burden of Unpredictable Excise Taxes and High InflationFigure 17 compares the marke

206、t price and demand for beer in South Africa between 2013/14 and 2023/24.During this period,beer prices rose by an average of 7.1%p.a.while demand for beer climbed by a weaker 3.8%p.a.Demand for the beverage declined by 32.0%in 2020/21 amid the Covid-19 restrictions but rebounded strongly by 66.6%aft

207、er the lockdown was lifted in 2021/22.If the distortionary effects of the lockdown restrictions during the height of the Covid-19 pandemic are excluded,consumer demand for beer increased by a mere 0.8%p.a.on average.Consumer sensitivity to price changes is captured through the PED,which is calculate

208、d by comparing the relative change in demand for goods given a change in the price thereof(Nelson,2014).0123456789101112132012/132013/142014/152015/162016/172017/182018/192019/202020/212021/222022/232023/24Market price excluding VATMarket price excluding VAT&ExciseMarket priceZAR per 500mlFigure 16:

209、Beer prices have risen markedly over the past decadeSources:StatsSA,National Treasury,SAB,Oxford Economics AfricaFigure 18 shows the average PED for beer in South Africa since 2012/13 in response to the impact of above-inflation beer price increases on demand.An ordinary least squares regression mod

210、el was constructed using annual frequency data for 2012/13 to 2023/24 to account for varying income levels.The results were verified by comparing the findings of the regression analysis to previous estimates by the Bureau for Economic Research(BER,2023).Although the BERs estimates relied on quarterl

211、y data,it was limited up to 2019,whereas the current modelling uniquely accounted for the Covid-19 pandemic,despite relying on annual frequency data.-10-505101520252013/142014/152015/162016/172017/182018/192019/202020/212021/222022/232023/24Change in priceChange in demand+66.6%-32.0%Figure 17:Sharpl

212、y rising beer prices stifle demand in South Africa Sources:StatsSA,BarthHaas,SAB,Oxford Economics Africa2010 estimate2023 estimate2024 estimate-0,9-0,8-0,7-0,6-0,5-0,4-0,3-0,2-0,10,0%Figure 18:PED for beer regression results in relation to previous findingsSources:StatsSA,National Treasury,SAB,Oxfor

213、d Economics AfricaControlling for income levels,the regression analysis establishes the inverse relationship between beer prices and consumer demand,with above-inflation price increases moderating demand.Specifically,the modelling resulted in a PED for beer of-0.88 inclusive of the impact of Covid-1

214、9 lockdown limitations.In other words,a 1%increase in beer prices above inflation is associated with a 0.9%decline in demand for beer in South Africa on average,which is larger than the 2010 estimate of-0.7 and marginally above the 2023 estimate of-0.85.This,in turn,demonstrates that consumers are b

215、ecoming increasingly sensitive to changes in beer prices,with above-inflation duty escalations and VAT playing a role.These results validate the degree to which above-inflation beer price increases reduce demand for the beverage.The analysis,however,only accounted for legal beer sales,while illicit

216、markets were not considered.Even so,excessive beer price increases in high-inflation environments may incentivise substitution to other illicit alcoholic products(Witt&Nagy,2022).The sale of illegal alcohol is associated with worse health outcomes and become more prevalent in markets with weak regul

217、ation,smuggling,and high taxes(Skehan et al.,2016).Above-inflation duty escalations or higher tax burdens disrupt market demand and supply,opening a gap for consumers to purchase illicit goods sold at lower prices.Due to a lack of regulation and quality control,these products harm public health and

218、disproportionally affect less affluent individuals.20OXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High Inflation4.EXCISE DUTIES LEVIED ON BEER IN SOUTH AFRICAAs described in Chapter 2,South Africas excise duties on beer are governed through the annual budget process,with the c

219、urrent excise regime having its roots in the National Treasurys 2014 excise policy discussion document.This chapter investigates South Africas fiscal receipts from excisable products,the historic progression of the countrys duties on beer,the sensitivity of excise payments to the levels of duties im

220、posed,and the tax burden on beer against the governments targets.4.1 DISSECTING FISCAL RECEIPTS FROM EXCISABLE PRODUCTSThe National Treasury of South Africa imposes duties on and collects excise tax revenues from manufacturers of products with adverse health,social,economic,and/or environmental exte

221、rnalities(SARS,2024a).In principle,these duties aim to raise added fiscal revenues and internalise the socio-economic risks associated with using excisable products by reassigning these costs to the relevant producers and increasing the final prices of goods for consumers to discourage harmful behav

222、iour(National Treasury,2014).Figure 19 shows the total fiscal revenues collected by the government from the production of excisable products relative to beer.In 2012/13,the largest share of excise receipts was collected from non-alcoholic products(51.7%),followed by beer(27.6%)and other alcoholic be

223、verages(20.7%).Over time,excise revenues from beer manufacturing surpassed those gathered from all other excisable product categories and represented a prodigious 34.7%of total excise receipts in 2023/24.28%35%21%31%52%34%0102030405060702012/132013/142014/152015/162016/172017/182018/192019/202020/21

224、2021/222022/232023/242024/25BeerOther alcoholic beveragesRemaining excisable productsZAR bnGovtproj.*Note:Percentages(%)in bars indicate shares in total excise revenues.Figure 19:Nominal excise revenues from beer versus other alcoholic and taxable productsSources:National Treasury,Oxford Economics A

225、frica 2221OXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High InflationFigure 20 illustrates the advancement of beer excise tax receipts compared to alternative alcoholic beverages and other e

226、xcisable products since 2012/13.Between 2012/13 and 2023/24,excise revenue collections from beer increased by a compound annual growth rate(CAGR)of 9.0%(or 159.0%in absolute terms),whereas excise receipts from other alcoholic beverages rose at a faster pace of 10.9%p.a.on average(212.9%in absolute t

227、erms).Yet,total excise taxes of ZAR 21.9 billion(bn)received from beer in 2023/24 alone still surpassed the combined ZAR 19.8bn collected from other alcoholic beverages by 10.3%.Similarly,in per capita terms for adults,excise revenues from beer increased to ZAR 466 in 2023/24 from ZAR 220 in 2012/13

228、,significantly exceeding the combined excise taxes collected from other alcoholic beverages of ZAR 423 in 2023/24 and ZAR 165 in 2012/13.Alcoholic beverages as a collective steadily accounted for a greater portion of total fiscal excise receipts to reach a share of 66.1%in 2023/24,while such taxes f

229、rom the remaining excisable product categories grew at a notably slower average rate of 2.8%p.a.(or 35.3%in absolute terms).Even so,the share of excise receipts from beer has gradually given way to other types of alcohol.Nonetheless,the beverage still represents more than half(52.4%)of total excise

230、duties collected by the government from alcoholic beverages in 2023/24.4.2 EVOLUTION OF EXCISE DUTIES ON BEER IN SOUTH AFRICA VERSUS CPI INFLATIONSouth Africa imposes a uniform alcoholic-content-based specific excise on the production of beer.This duty,along with VAT levied on the net domestic marke

231、t price of beer,comprises the overall tax burden that producers and retailers pass on to consumers in the final retail price of beer(WHO,2024a).The National Treasury sets excise duties in ZAR per LAA as a fixed percentage of the WARSP of beer.Therefore,excise duties are based on the alcohol content

232、of products,with beverages containing greater Govtproj.2012/132013/142014/152015/162016/172017/182018/192019/202020/212021/222022/232023/242024/25BeerOther alcoholic beveragesRemaining excisable products%share 0102030405060708090100Figure 20:Share of beer and other alcoholic beverages in overall exc

233、ise tax revenue collections Sources:National Treasury,Oxford Economics Africa Between 1994/95 and 2002/03,the total tax burden target in excise duties and VAT on beer was about 35%of WARSPs as the government sought to align with international benchmarks,such as France,Germany,Italy,Portugal,Spain,an

234、d the US.Over this period,excise duty escalations were below CPI inflation outcomes only in 1998/99,1999/2000,and 2002/03,while they also exceeded expected retail beer price increases of around 2%p.a.in the 1990s.In 2003/04,the overall tax burden target for beer in excise duties plus VAT was reduced

235、 to 33%of WARSPs,while the related duty escalations were below CPI inflation outcomes only in 2008/09 over the 2003/04 to 2011/12 period(National Treasury,2024).In 2012/13,the total targeted tax burden for beer was raised to 35%of retail prices.Excise duty escalations on the beverage were persistent

236、ly raised above projected and actual inflation between 2012/13 and 2014/15.Since 2015/16,the National Treasury has excluded VAT from the tax burden calculation for alcoholic beverages.Consequently,it lowered the tax burden benchmark for beer to 23%,referred to as the targeted excise tax burden as a

237、percentage of beers average retail prices(National Treasury,2024).However,excise duties and VAT are shifted to consumers,suggesting that the overall beer tax burden is higher following the 1 ppt increase in the VAT rate to 15%in 2018/19.As shown in Figure 22,since 2012/13,excise duties on beer have

238、increased consistently above projected inflation,except in 2020/21 and 2023/24 when they were raised by expected inflation.Yet,the excise duty increases on beer were significantly higher than inflation outcomes between 2012/13 and 2021/22.Notwithstanding,excise duties on beer are expected to outpace

239、 forecast inflation yet again in the current fiscal year(National Treasury,2024).levels of pure alcohol subject to higher excise taxes than lower-alcohol products.This practice aligns with international taxation standards(National Treasury,2014).Excise duties are increased annually during the delive

240、ry of the national budget in February to take effect in the coming fiscal year(i.e.,April to March).South Africas duty structure has been altered over time,with the evolution in the countrys beer excise regime summarised in Figure 21(National Treasury,2014;National Treasury,2024).1994/95 to 2002/03

241、2003/04 to 2011/122012/13 to 2014/152015/16 to presentR 14.73 R 25.63(+74%)R 28.19 R 53.97(+111%since 2002/03)R 59.36 R 68.92(+28%since 2011/12)R 73.05 R 135.89(2024/25)(+97%since 2014/15)Tax burden target:35%excise+VAT.Duty increased with forecast CPI inflation,but exceeded actual inflation outcome

242、s in 1995/6,1996/7,and 2000/1.Tax burden target:33%excise+VAT.Duty increased above forecast CPI and significantly exceeded actual inflation outcomes in 2003/4 to 2007/8 and 2009/10to 2011/12.Tax burden target:35%excise+VAT.Duty increased notably above forecast CPI and significantly exceeded actual i

243、nflation outcomes in 2012/13to 2014/15.Tax burden target:23%excise only.Duty increased above forecast CPI except in 2020/21 and 2023/24 when it was neutral and notably exceeded actual inflation outcomes in 2015/16 to 2021/22.Specific excise duties by 5%alcohol content(ZAR/LAA)Figure 21:Timeline of c

244、hanges in South Africas excise tax regime on beerSources:National Treasury,Oxford Economics Africa2324OXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High InflationEver since the targeted overa

245、ll tax burden for beer(i.e.,excise duties plus VAT)was lowered to 33%of WARSPs in 2003/04,the tax incidence for the first nine months of a current fiscal year has served as a reference point for the annual adjustments in excise duties as per the National Treasurys guidelines.Actual adjustments in ex

246、cise duties are,however,calculated based on tax burdens derived from the governments projected retail prices for the next fiscal year or the expected CPI inflation rate,whichever is higher(National Treasury,2014).The following formula is used to calculate excise duties on beer liable for payment by

247、beer producers(SARS,2024).In other words,if it is projected that retail beer prices would rise faster than forecast CPI inflation,then excise duties increase with anticipated beer prices with the aim to maintain the total tax burden(i.e.,positive real price increase).Conversely,if forecast inflation

248、 outpaces retail beer prices,excise taxes are adjusted to projected CPI inflation(i.e.,neutral real excise duty).Regardless,if actual retail beer prices and/or CPI inflation turn out to be lower than the projected levels after the excise duty has been implemented,then these duties can be deemed exce

249、ssive,as they drive up the overall tax burden for consumers beyond levels informed by realised price pressures.The production expenses associated with such taxes are typically passed on to consumers,albeit partially,who consequently endure a lower purchasing power of their money spent on beer since

250、the prices they pay for the alcoholic beverage will be higher than the consumer inflation or retail prices realised in practice.Consequently,the National Treasury has often negated the principle of maintaining the total tax burden by effectively increasing the excise duty on beer by more than the an

251、ticipated inflation rate for a coming fiscal year,including in periods when average retail prices have increased by a lesser degree relative to prevailing inflation.The government has also not compensated producers for undue duty escalations or overestimations through lower increases in subsequent p

252、eriods to reflect actual price developments.Inflation-plus adjustments in excise duties can result in major deviations from the targeted beer consumption tax guidelines(National Treasury,2014).Figure 22 indicates the progression of South Africas excise duties on beer since the National Treasury incr

253、eased the tax burden on the beverage in 2012/13.By implementing excise duties above inflation and/or retail prices of beer without ex-post corrections,the overall excise tax burden has essentially increased to a level above the targeted tax incidence over the past decade.The precariousness associate

254、d with future retail beer prices or CPI inflation rates creates business and market uncertainty for beer producers.The adverse effects of excessive excise tax increases may potentially be reduced,market certainty improved,and price fairness towards consumers enhanced if such duties are raised by rea

255、lised CPI inflation outcomes or,as a minimum,by the anticipated inflation rate for a given fiscal year(as was the case before 2003/04).It would enhance tax predictability for beer producers and help ensure that the tax burden is maintained.At the same time,the shifting of excise duties to consumers

256、would align with actual retail price movements.4.3 RESPONSIVENESS OF EXCISE REVENUES TO ABOVE-INFLATION DUTIES ON BEERWhile the governments excisable revenue collections from beer have increased with the imposition of positive real excise duties,the responsiveness of these revenues has been suppress

257、ed over time as duty escalations have persistently been raised above inflation.Figure 23 translates the nominal excise revenue collections in both real(i.e.,adjusted to beer CPI)and rate-adjusted(i.e.,if historical duties on beer remained constant at current levels)terms,along with the per capita be

258、er production patterns for adults in South Africa since 2012/13.The corresponding excise duties imposed on beer producers that resulted in the related nominal revenue collections are shown in the adjacent graph.Excise duties on beer increased by 114.6%to ZAR 127.40 per LAA in 2023/24 from ZAR 59.36

259、per LAA in 2012/13(i.e.,CAGR of 7.2%)and is set to grow by a further 6.7%y/y to ZAR 135.89 per LAA in 2024/25(National Treasury,2024).Concurrently,total beer production volumes improved by 11.4%to 3.5bn litres in 2023/24 from 3.2bn litres in 2012/13(i.e.,CAGR of 1.0%)(BarthHaas,2024),suggesting that

260、 the degree of duty escalations in ZAR/LAA has discouraged beer consumption.Coupled with augmented overall beer consumption volumes,the imposition of excise taxes has also maintained a constant income stream for the government.The value of nominal 0246810122012/132013/142014/152015/162016/172017/182

261、018/192019/202020/212021/222022/232023/242024/25CPI inflation(fiscal projection)CPI inflation(outcome)Beer CPI inflation(outcome)Beer excise duty(nominal)%y/yFigure 22:Nominal excise tax rates on beer vs CPI inflation and retail price outcomesSources:National Treasury,StatsSA,Oxford Economics Africa

262、V xAVAVV xAVx RdExcise duty payable=LAA x RdWhere:V=Bulk beer volume in litres=Alcoholic strength by volume(ABV)=LAA=RdRate of duty per LAA,with the escalation of Rd subject to forecast inflation or projected increase in the WARSP of beer,whichever is highest 2526OXFORDE C O N O M IC SAFRICAOXFORDE

263、CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High Inflationfiscal revenues received from beer producers rose considerably by 159.0%to ZAR 21.9bn in 2023/24 from ZAR 8.4bn in 2012/13(i.e.,CAGR of 9.0%).Nominal excise collection

264、s from beer are projected to rise further to ZAR 23.4bn in 2024/25.However,this may not materialise in practice,as the growth in excise revenues has started to slow,increasing by only 2.4%between the past two fiscal years(National Treasury,2024).Given that the growth in excise duties on beer has sig

265、nificantly outpaced both headline CPI and beer CPI inflation over the 2012/13 to 2023/24 period,respectively by 2 ppts and 1.8 ppts,excise revenues have effectively exceeded nominal collections in real terms.Specifically,real excise revenues refer to total nominal excise tax collections adjusted for

266、 the beer CPI sub-index with 2023/24 as the base year(i.e.,in constant 2023/24 terms).The resulting effect is that the gap between nominal and real revenues narrows as tax collections progress towards the base year,where nominal and real excisable income are equal.In consideration of the impact of b

267、eer-specific CPI inflation as a reflection of retail price increases,excise collections by the government have slowed by over 3.5 times in real terms relative to nominal receipts,but still expanded by 45.3%over the 2012/13 to 2023/24 period(i.e.,CAGR of 3.5%).Moreover,while nominal excise revenues g

268、rew in 2023/24,this fiscal income stream contracted in real terms by 2.4%y/y amid rising beer CPI inflation.Additionally,to adequately test the responsiveness of nominal excise revenues to above-inflation duties on beer,it is worth considering the level of such fiscal receipts if they had remained c

269、onstant at current levies.Rate-adjusted excise revenues from beer are calculated by apportioning the nominal duty escalations since 2012/13 to the absolute level of duties implemented in 2023/24 via indexation(i.e.,2023/24=100).In other words,rate-adjusted excise revenues represent the hypothetical

270、value of tax collections should historical duties on beer have been imposed at the same levels as in 2023/24.In practice,however,these revenues are unlikely to have materialised since they would have imposed an acute shock on beer producers and consumers alike,diminishing the economic,structural dev

271、elopment,and fiscal benefits arising from the beer industry.00510152025100806040202012/132013/142014/152015/162016/172017/182018/192019/202020/212021/222022/232023/242024/25Consumption per capita(RHS)NominalReal(constant 2023/24 beer prices)Rate-adjusted nominalZAR bnGovtproj.Litres50607080901001101

272、201301402012/132015/162018/192021/222024/25Beer excise duty(ZAR/LAA)Figure 23:Nominal,real,and rate-adjusted excise revenues from beer vs output per capitaSources:National Treasury,BarthHaas,Oxford Economics Africa 02550751001251500123456782012/132013/142014/152015/162016/172017/182018/192019/202020

273、/212021/222022/232023/242024/25Other alcoholic beveragesBeerBeer excise duty,ZAR/LAA(RHS)Beer sales per capita,litres(RHS)LAAForecastFigure 24:Alcohol consumption per adult versus beer excise duty escalationsSources:WHO,BarthHaas,National Treasury,Oxford Economics Africa Nonetheless,whereas nominal

274、excise revenues expanded by 159.0%(or 9.0%CAGR)between 2012/13 and 2023/24,rate-adjusted excise revenues would have expanded by only 20.7%(or 1.7%CAGR)over the same period.While average growth of 1.7%p.a.is notable,it also suggests that fiscal income derived from beer production has become less resp

275、onsive to sharp duty escalations.Viewed from this perspective,persistent excise duty escalations above prevailing inflation rates not only adversely affect beer producers and the beverages affordability for consumers,but also harm fiscal revenue collections if left unchecked.The resulting effect is

276、for excise revenues to fall below potential in real and rate-adjusted terms.The enduring imposition of above-inflation excise taxes has also started to show in consumption patterns.While the volume of total beer sales has generally improved,per capita consumption by adults has begun to wane,especial

277、ly during periods of above-inflation duty escalations.In weight-based terms,beer consumption has contracted by an average rate of 0.8%p.a.to 74.8 litres per person in 2023/24 from 82.0 litres per person in 2012/13.Per capita consumption of beer declined sharply in 2018/19 and 2019/20 by an average o

278、f 4.1%y/y following the pointed escalation in excise duties by an average of 8.7%p.a.over those years.Following the lockdowns associated with the Covid-19 pandemic,beer consumption recovered to 69.9 litres per person in 2021/22.Beer consumption per capita is expected to remain at relatively low leve

279、ls given above-inflation excise tax increases.A similar pattern emerges in volumetric terms,as indicated in Figure 24.Expressed in litres of pure alcohol,beer consumption also declined by a CAGR of 0.8%(or by 8.8%in total)to 4.0 LAA in 2023/24 from 4.4 LAA in 2012/13.Over the same period,though,per

280、capita consumption of other alcoholic beverages has collectively increased by an average rate of 0.7%p.a.(or 7.4%in total)since 2012/13.In that regard,the overall tax burden in excise duties plus VAT affects the affordability of beer for consumers and may result in substitutionary effects to other t

281、ypes of alcohol or influence them to turn to the illicit market(National Treasury,2014).2728OXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationOXFORDE C O N O M IC SAFRICA29The Burden of Unpredictable Excise Taxes and High Inflation4.4 TRACKING SOUTH AFRICAS TAX BURDEN

282、 ON BEER IN RELATION TO THE EXCISE TARGETSAs detailed in Section 4.2,the South African governments previous overall tax burden target for beer was 35%of retail prices in excise duties plus VAT,which was last changed in 2015/16 to 23%of WARSP in excise taxes only.Accordingly,the National Treasury rai

283、ses beer producers payable excise duties each fiscal year towards the excise tax burden target of 23%of average retail selling prices as per official guidelines.However,the way in which these excise duties are enacted,along with VAT,effectively comprise the actual overall tax burden on beer that is

284、shouldered by consumers.Figure 25 shows the evolution of South Africas aggregate tax burden since 2012/13 in consideration of nominal excise and VAT revenues collected by the government from total beer sales3.Domestic beer sales for each fiscal year were estimated as the value of retail volumes sold

285、 at market prices in ZAR per litre.The beer volumes in litres were determined as a function of sales in LAA at an average alcoholic strength by volume(ABV)of 5%as per National Treasury guidelines(National Treasury,2014).In turn,the volume of domestic beer sales in LAA were calculated from the govern

286、ments excise revenues from beer and the prevailing duties in each fiscal year per level of pure alcohol.Subsequently,VAT was removed from final domestic beer sales in order to obtain the net sales value.The overall tax burdens on beer were consequently estimated by expressing the sum of total VAT an

287、d excise income received by the government from beer as a percentage of the average retail selling prices of the beverage(i.e.,WARSP).3 South Africas tax burdens on beer were calculated using retail prices for beer supplied by SAB,which also provided the remaining cost composition of the final beer

288、price.01020304050607080901002012/132013/142014/152015/162016/172017/182018/192019/202020/212021/222022/232023/242024/25Weighted average retail sales*Excise revenuesVATDomestic beer sales valueZAR bnGovtproj.*Note:Net domestic beer sales value before excise taxes and VAT,allocated in different propor

289、tions amongproduction input costs and expenses,distribution outlays,and sales mark-ups.Figure 25:Nominal domestic beer retail sales and its overall tax burden in excise plus VATSources:National Treasury,Oxford Economics Africa South Africas overall tax burden on beer has increased to ZAR 33.4bn in 2

290、023/24 at an average growth rate of 9.1%p.a.or by 161.3%in total,from ZAR 12.8bn in 2012/13.Over time,the share of the overall tax burden(i.e.,excise plus VAT)borne by beer producers and passed on to consumers of the beverage has correspondingly grown to 37.8%of WARSP in 2023/24,from the low of 32.0

291、%of WARSP in 2015/16 amid persistent above-inflation excise duty escalations.Of this,beer excise payments to the government represented a burden of 24.8%of WARSP in 2023/24,up from the low share of 19.8%of WARSP in 2015/16.Figure 26 illustrates the composition of the tax burden for one litre of beer

292、 containing 5%ABV at the prevailing VAT rate of 15%and an excise duty of ZAR 127.40 per LAA imposed in 2023/24.The average retail price of one litre of beer in 2023/24 was ZAR 25.69.The excise tax per LAA equates to ZAR 6.37 per litre of beer sold after accounting for the ABV in the beverage,which r

293、epresented 24.8%of WARSP.The VAT rate of 15%levied on the net market price per unit of beer was equivalent to ZAR 3.35 per litre,which corresponded to 13.0%of WARSP(and 15%of the net sales price).This implies that the overall tax burden per unit of beer sold,in excise duties plus VAT,was ZAR 9.72,eq

294、uivalent to 37.8%of WARSP in 2023/24.Figure 26:Composition of taxes and costsin WARSP of one litre beer sold in 2023/24Figure 26:Composition of taxes and costs in WARSP of one litre beer sold in 2023/24Sources:National Treasury,SAB,Oxford Economics AfricaFigure 26:Composition of taxes and costs in W

295、ARSP of one litre beer sold in 2023/24(Before overheads,depreciation,amortization and corporate tax)Retail price:ZAR 25.69VAT burden:ZAR 3.35+=Excise burden:ZAR 6.37Overall burden:ZAR 9.7223%Government excise tax burden target35%Previous overall(excise+VAT)tax burden target33%20%10%38%25%Production

296、CostsProducer MarginRetail MarginActual overall tax burdenActual excise tax burden30OXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High InflationStated differently,of every beer bought,about a

297、 quarter of the final price comprise excise taxes paid by beer producers into the fiscus,which rises to nearly 38.0%in taxes when VAT is included.Moreover,production costs account for around 33.0%in the average retail price of one litre of beer,leaving a margin of approximately 20%for beer producers

298、 before accounting for overheads,depreciation,amortisation,and corporate taxes.Above-inflation adjustments to excise duties and a higher VAT rate without ex-post corrections have therefore raised prices for consumers already struggling with high costs of living,while squeezing beer producers facing

299、increasing input costs and overheads.Figure 27 compares South Africas fiscal receipts from excise taxes and VAT on beer as a share of the WARSP to the governments previous and current targeted tax burdens.Between 2012/13 and 2014/15,the total targeted tax burden was 35%of WARSP in excise duties and

300、VAT.Note:*Beer VAT plus excise duty receipts.*Excise duty receipts only.*In 2015/16 the target tax burden was changed from VAT plus excise to excise duties only as a percentage of WARSPs.0510152025303540452012/132013/142014/152015/162016/172017/182018/192019/202020/212021/222022/232023/242024/25Over

301、all tax burden*Excise revenues burden*Guideline target tax burden*%share of weightedaverage retail sales Figure 27:Overall and excise tax burdens on beer versus government targetsSources:National Treasury,Oxford Economics Africa Across these three fiscal years,the overall tax burden on beer oscillat

302、ed around the targeted benchmark,although it was 2 ppt above the 35%threshold of retail prices on average.This was driven by excise duties on the beverage being raised substantially above projected and actual inflation,respectively by 2.6 ppts and 2.8 ppts p.a.on average from 2012/13 to 2014/15.On a

303、verage,increases in excise duties over these years were also 0.3 ppt above realised beer price inflation.Over this period,the value of beer sales also rose sharply as retailers increased prices for final consumers at margins exceeding the growth in production and sales taxes.By 2023/24,the overall t

304、ax burden on beer was 37.8%or 2.8 ppts above the governments previous overall target of 35.0%of WARSP due to sustained above-inflation beer duty increases and a higher VAT rate.Since the government excluded VAT from the tax burden calculation in 2015/16 and enforced a new excise tax target of 23%of

305、average retail prices,excise revenues from beer rose steeply on an annual basis and exceeded the 23%of WARSP benchmark since 2018/19.These revenues rose amid duty escalations on beer outpacing projected and prevailing inflation rates,respectively by 1.9 ppts and 2.0 ppts p.a.on average between 2015/

306、16 and 2023/24(refer to Section 4.2 and Section 4.3).By 2023/24,the excise payment burden of beer producers was equivalent to 24.8%of WARSP.In other words,the excise tax burden on beer has continued to trend above the National Treasurys target of 23%of WARSP over the past six years and was 1.8 ppts

307、above that threshold in 2023/24.Excise duties on beer have therefore diverged from the officially targeted guidelines,while the overall tax burden has also grown faster than domestic beer sales,by an annual average of 1 ppt over the past decade.The diversion from official targets has been accentuate

308、d by persistent above-inflation excise duty escalations on beer and a higher VAT rate,disproportionately affecting low-income consumers.Therefore,the principle of maintaining the overall tax burden has not been adhered to,as it has risen faster than the targeted tax incidence.This trend raises conce

309、rns about the impact of excise taxes on beer producers and consumers alike in a high-inflationary environment,while the responsiveness of excise receipts from beer for the government has also been reduced below potential as observed more recently.3132OXFORDE C O N O M IC SAFRICAOXFORDE CONOMI CSAFRI

310、CAThe Burden of Unpredictable Excise Taxes and High InflationThe Burden of Unpredictable Excise Taxes and High Inflation5.BENCHMARKING SOUTH AFRICAS EXCISE DUTIES ON BEERFive countries were selected with which to compare South Africas excise regime on beer and the related performance in revenues to

311、evaluate the degree of the governments duty escalations on beer relative to those of the international benchmark countries.These are Australia,Canada,Mauritius,Tanzania,and the UK.Although several sovereigns were considered,these countries were ultimately selected based on factors such as the compar

312、ability of their excise regimes,beer industries and consumption patterns,health-related policy goals,and the requisite data availability.5.1 EXCISE REGIMES AND INFLATION IN THE SELECTION OF BENCHMARK COUNTRIESSection 5.1.1 to Section 5.1.5 review the excise frameworks of the benchmark countries in c

313、onsideration of duty escalations within their distinct inflation environments,as well as how these duties have influenced excise revenues for their governments and retail prices of beer.For each sovereign comparator state,Figure 28 to Figure 32 in Box 1 encapsulates the benchmark countries excise du

314、ty escalations,the related fiscal receipts since 2013/14,and the level of such duties in real terms given prevailing inflation and final beer retail prices.The corresponding excise duties imposed on beer producers that influenced the related nominal revenue collections are shown in the adjacent grap

315、hs for each country in Box 1.5.1.1 AUSTRALIAAustralia levies a tiered alcohol content-based specific excise tax on beer,with the rate increasing with the strength of the beverage(Wall et al.,2017;WHO,2024a).Duties are imposed on LAAs above 1.15%by volume in the final product through the following fo

316、rmula(Australian Taxation Office or ATO,2024):Total volume(litres)of product x(alcohol strength 1.15%)x current excise duty rate.Australias excise taxes on beer are indexed and automatically adjusted biannually each fiscal year to actual inflation outcomes of the prior period(Anderson,2019).Figure 2

317、8 in Box 1 shows Australias excise duties on beer increased by a CAGR of 2.7%(or 33.4%overall)to AUD 59.38 per LAA in 2023/24,from AUD 44.52 per LAA in 2012/13.These escalations align with the countrys actual inflation outcomes over the same timeframe due to its CPI-indexed excise duty regime,thus c

318、reating cost and price certainty for beer producers and consumers.ATO has also kept duty increases below inflation outcomes when price pressures were high(e.g.,2021/22),after which it would retroactively modify excise duties to maintain their real values,while being cognisant of the adverse impact o

319、f excessive duty escalations during periods of high inflation.3334OXFORDE CONOMI CSAFRICAThe Burden of Unpredictable Excise Taxes and High InflationOXFORDE C O N O M IC SAFRICA35The Burden of Unpredictable Excise Taxes and High InflationDespite upholding neutral real excise duties since 2012/13,aggr

320、egate excise payments by beer producers rose by a CAGR of merely 1.4%(or 16.5%in total)to AUD 2.6bn in 2023/24.This suggests that excisable fiscal income from beer may have weakened further had excise duties been raised above inflation.Regardless,between 2012/13 and 2023/24,final beer retail prices

321、increased by an average rate of 4%p.a.as the tax burden was shifted to consumers,largely driven by the comparatively higher absolute increases in duties over the past two fiscal years.5.1.2 CANADACanada levies a volume-based specific excise tax on beer under different tiers based on production quant

322、ities and the alcohol contents within those volume ranges per hectolitre(Canada Revenue Agency or CRA,2024).Like Australia,beer excise duties for a given fiscal year are automatically adjusted to the preceding years inflation rate via CPI-indexation,albeit once per annum,in order to maintain the rea

323、l value of these taxes under normal inflationary conditions(WHO,2024a).Figure 29 in Box 1 indicates Canadas excise duties on beer increased by a modest average annual rate of 1.7%(or 19.8%in total)to CAD 0.31 per litre in 2023/24,from CAD 0.26 per litre in 2012/13.Despite being indexed to inflation

324、outcomes,the countrys CAGR in excise duties was 0.7 ppt below prevailing inflation rates over the same period,which,along with a stable duty hike trajectory,has supported beer manufacturers through lower production taxes and consumers via weaker price transmission.Moreover,when inflation trended abo

325、ve historical levels,CRA capped excise duty escalations on beer at rates reflecting past long-term averages to foster market certainty and provide financial relief to consumers and producers alike.For example,in the relatively high inflation conditions since 2021/22,the revenue agency capped excise

326、adjustments at 2.0%from 2023/24 to 2024/25,while also halving duty rates on the first 15,000 hectolitres of beer brewed domestically and exempting excise taxes on beverages containing less than 0.5%ABV(CRA,2024).Apart from having negative real duties since 2012/13,total excise payments collected fro

327、m beer producers remained fairly even,increasing by a marginal CAGR of 0.9%(or 9.0%overall)to CAD 696.2m in 2022/234.This implies that excise revenues from beer may have contracted in the event of above-inflation duty escalations.On average and regardless of large swings,Canadian retailers have also

328、 been cognisant of consumers and kept increases in beer prices broadly aligned to inflation rates,with a pass-through of only 0.4 ppt above CPI inflation between 2012/13 and 2023/24.5.1.3 MAURITIUSMauritius levies a uniform volume-based specific excise tax on beer per litre above and below 9.0%ABV t

329、hresholds(WHO,2024a).Unlike Australia and Canada,the Mauritian Revenue Authority(MRA)does not automatically adjust excise duties on beer for inflation.Still,they are manually determined by the islands revenue authority in response to economic conditions and updated through budgetary decisions or oth

330、er legislative measures as necessary(MRA,2024).Figure 30 in Box 1 indicates Mauritiuss excise duties on beer increased by an average annual rate of 4.0%(or 54.4%overall)to MUR 52.80 per litre in 2023/24,from MUR 34.20 per litre in 2012/13.In an attempt to prevent real excise duty erosion,these escal

331、ations have been a mere 0.3 ppt above CPI inflation outcomes on average over the same period.In doing so,the government has often kept duties on beer unchanged(e.g.,2017/18 4 At the time of writing,Public Accounts of Canada have not reported on excise revenues from beer for 2023/24.to 2019/20 and 20

332、23/24),aiding producers and consumers by allowing for negative real excise taxes.Such pauses in duty increases have often coincided with subsequent adjustments in excise taxes above prevailing inflation rates(e.g.,2013/14 to 2016/17 and 2020/21 to 2022/23),resulting in positive levies in beer duties

333、 in order to maintain long-term excise duties on beer slightly above actual CPI outcomes(Sobhee et al.,2015).Being a prominent tourist destination,Mauritius has imposed quite high excise taxes,as passing these on to final retail prices generally does not influence demand for beer from foreign visitors with greater purchasing power compared to a large portion of the domestic populace whose consumpt