It’s not an alcohol sin tax, it’s a health tax – and the Budget should increase it

Each year in February, the minister of finance delivers the annual Budget speech, which outlines how Treasury will raise the money that the government needs to do its work, and how those funds will be spent. Most of those funds come from the various tax, duty and levy payments that the government gets from individuals and businesses in the country. 

One type of tax or duty that by law must be paid by some industries is excise tax (sometimes inappropriately called “sin tax”). Excise tax, which is usually increased every year, is a special duty imposed on items that can cause harm to people, such as alcohol, tobacco, sugar and fuel.

We would like to argue that there are many reasons why this tax should be called a health tax, because in reality it is a budgetary tool to promote the health and wellbeing of our people.

It can do this in two ways. One is to encourage people to reduce their consumption of a harmful product by increasing its price and making it less affordable. The other is for the money collected through this “health tax” to be used to fund government and non-government programmes to reduce the harm caused by a product, and to assist those who have already been harmed by it through providing them with treatment.

As indicated, one of the harmful products on which excise tax must be paid is alcohol. Over the past year, the whole country has seen the harm that alcohol can cause. When the government suspended the transportation and sale of alcohol under Covid-19 state of disaster regulations in 2020, the number of people landing up in trauma units in hospitals with injuries caused by alcohol-related car crashes and interpersonal violence dropped dramatically. 

On New Year’s Eve 2020, for example, for the first time in the history of Chris Hani Baragwanath Hospital in Soweto, there were no alcohol-related admissions to its trauma unit because of the third suspension on the sale of alcohol, which began on 28 December 2020. However, when that suspension was lifted at the beginning of February 2021, there was an increase in trauma patients in the Western Cape from 290 cases the week before the lifting of the ban to 596 (more than double) the week after. 

One of the challenges the country faces is that alcohol, especially beer, is very cheap, which means that people who drink it can afford to drink a lot, leading to an increase in alcohol-related harm. This is not surprising because excise tax has not been used effectively to discourage people from drinking too much. 

According to Treasury figures, excise tax on beer has actually gone down in real terms over the past five years. For example, in 2016 rands, the excise tax increase on one bottle of beer was R5, but in 2018 – also in 2016 rands – the increase was only R1.60.

A study was done in 2018 by Nicholas Stacey and others to model the impact of increasing excise taxes (or the health tax, as we call it) on certain harmful products. They found that if you increased the tax rate, people would consume less of them and, as a result, live longer. They calculated the benefit in terms of life years saved – meaning the total increase in years lived across the whole population. 

We also call on Minister of Finance Tito Mboweni, when delivering the Budget speech on Wednesday 24 February 2021, to explain the significance of the excise tax on alcohol, why it’s important and how it can help to save lives.