Corne Van Walbeek – Alcohol tax, price and consumption

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Alcohol tax, price and consumption
Corné van Walbeek
CONFERENCE ON TOBACCO CONTROL.
SCHOOL OF ECONOMICS
16-18 JULY 2014
ALCOHOL EXCISE
TAXES
Alcohol taxation in South Africa
 Beer and spirits:
 Taxed since at least 1910
 Wine:
 Taxed since 1942, but tax policy has been erratic
 Sorghum beer:
 Taxed since 1992 but at very low rate
The excise tax structure on alcohol
 Excise taxes on alcohol are levied as specific taxes
 This is in line with international best practice
 Specific taxes tend to “compress” retail prices in a
narrower band
 Government “subsidises” low-price product if taxes are
levied as ad valorem taxes
 BUT specific taxes can be eroded by inflation
Current (2014/15) excise tax rates
Product
Excise duty rate
Base
R68.92
Litre of absolute alcohol
Traditional African beer
(i.e. sorghum beer)
Traditional African beer
powder
7.82 cents
Litre
R34.70
Kilogram
Unfortified (i.e. natural)
wine
R2.87
Litre
Fortified wine
R5.21
Litre
Sparkling wine
R9.11
Litre
Ciders and flavoured
alcoholic beverages
R3.45
Litre
R137.54
Litre of absolute alcohol
Malt beer
Spirits
A long-term perspective on cigarette,
beer and spirits excise taxes
Different alcohol categories are taxed at
substantially different rates
The relative importance of alcohol taxation
Alcohol excise taxes as a percentage of total government
revenue
Financial
year
Cigarettes
Total
& cig.
Total
alcohol tobacco tobacco
Beer
Sorghum
beer
Wine
Spirits
1995
1.58
0.03
0.15
0.53
2.29
1.19
1.22
2000
1.17
0.02
0.20
0.39
1.78
1.65
1.78
2005
1.06
0.01
0.20
0.39
1.66
1.44
1.53
2010
1.04
0.01
0.22
0.42
1.69
1.39
1.46
2013
1.02
0.00
0.24
0.48
1.75
1.40
1.49
The relative contributions of the four alcohol
categories, 2013
Trends in government revenues from the various
alcohol categories and tobacco
TRENDS IN REAL
RETAIL PRICES
Some comments
 Price trends based on more than 200 000 individual price data points
collected by Stats SA for CPI purposes (December 2001 to May 2013)
 The average price is sensitive to the composition of the “basket”
 The inclusion or exclusion of a very expensive or cheap brand can have
a significant impact on the average, which can distort the picture
 Obviously wrong data (e.g. R400 for a can of beer) are excluded from
the database
 We don’t show average prices here, but focus on price trends in the
most monitored and well-known brands
Six brands of beer
Three brands of red wine
Three brands of white wine
Four brands of brandy
Five brands of whisky
EXCISE TAX AND
RETAIL PRICE
What we did
 To avoid issues of averaging prices across various
brands, we considered the price of the most
monitored brand in a particular sub-category
 Plot the nominal average retail price (of that
particular brand) against the nominal excise tax
 Calculated the total tax burden (excise tax plus VAT
as a percentage of the retail price) on the secondary
Y-axis
The total tax targets
 Total tax (excise tax plus VAT) as a percentage of the
average retail price for the category as a whole:
Beer: 35%
Wine: 23%
Spirits: 48%
 If the actual tax burden is substantially below the target,
then investigate



If the brand is a particularly expensive brand, relative to the average
If that particular packaging is more expensive than the average
packaging
Whether the specific tax is not set too low
Beer (Lager)
Red wine
White wine
Brandy
Whisky
Some observations
 The retail price increases nearly instantaneously in
response to an increase in the excise tax
 Tax increases seem to be fully passed onto consumers
 In some instances there is overshifting of the tax
 For beer the tax burden target is missed substantially
 We cannot pass much comment on the tax target for wine
and spirits given the heterogeneity in product, brands and
prices
The price of beer in different packaging
“Volume discount” of beer relative to
individual 340 ml cans
TRENDS IN ALCOHOL
CONSUMPTION
Aggregate consumption of alcohol
Per capita (15+) consumption of beer,
spirits and sorghum beer
Wine consumption
 Consumption cannot be derived from Treasury data, due to
the way the data are reported
 SAWIS indicates that since 1996 per capita consumption
decreased:




Natural wine: -24% (from 8.1 litres to 6.2 litres pa)
Fortified wine: -32% (from 0.94 litres to 0.64 litres pa)
Sparkling wine: -20% (from 0.20 litres to 0.16 litres pa)
Total wine: -25% (from 9.2 litres to 7.0 litres pa)
 Per capita consumption of ready-to-drink beverages
increased 198% from 2.8 litres to 8.3 litres pa
Prevalence of use (consumed in last seven days)
AVERAGE PREVALENCE
2010-2012
Beer
Brandy
Flavoured Alcoholic
Beverages
Fortified wine
Liqueur
Natural table wine (boxes)
Natural table wine (corked
bottles)
Rum
Sorghum beer
Sparkling wine/champagne
Whisky
White spirits
AVERAGE ANNUAL
CHANGE IN PREVALENCE
PERCENTAGE 2001-2012
Female
Male
Total
Female
Male
Total
9%
6%
21%
34%
17%
23%
21%
11%
22%
0.01
0.13
1.34
-0.05
-0.33
1.22
-0.06
-0.05
1.33
5%
9%
7%
9%
5%
12%
9%
10%
5%
11%
8%
9%
0.08
0.50
0.15
0.34
0.02
0.40
0.03
0.26
0.07
0.50
0.09
0.29
3%
3%
8%
7%
4%
6%
7%
7%
17%
8%
5%
5%
8%
12%
6%
0.14
-0.08
0.36
0.40
0.07
0.12
-0.46
0.15
0.84
-0.49
0.15
-0.24
0.28
0.58
-0.25
Translating large figures into meaningful figures
Beer
.
2012/13 total excise tax revenue
R8 252 million
2012/13 excise tax per unit
R59.36/ litre of AA
Total taxed litres of AA in beer
139 million litres of AA
Total litres of beer (at 5% alcohol content)
2780 million litres of beer
Adult (15+) population in 2012
35.5 million
Per capita consumption
78.4 litres per year
Percentage of adult population that regularly
drink beer (AMPS)
21%
Number of regular beer drinkers
7.5 million
Average consumption per regular beer drinker 370 litres per year
Conclusion
 Alcohol market as a whole is stable and not growing
 Beer consumption is stable
 Sorghum beer, wine and white spirits consumption is decreasing
 Ready-to-drink/Flavoured alcoholic beverages and whisky are increasing
 A general shift from older, conservative drinks to more popular drinks
 Participation rates are relatively low, but consumption per
drinker is high

This explains South Africa’s poor “drinking pattern” rating
 Excise taxes have increased modestly in the past 20 years, yet are
still much lower than they were a generation ago
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