Tax increases for alcohol, vaping, and tobacco products loom on the horizon for South Africa.

South Africans may soon face higher costs for their preferred indulgences as the government considers raising excise duties, commonly referred to as ‘sin taxes’.

In anticipation of the 2024 Budget address by Finance Minister Enoch Godongwana next week, PwC has highlighted the collaborative efforts of SARS and the South African Police Service, resulting in the confiscation of illicit goods.

Despite these efforts, illicit trade, particularly in cigarettes, remains a significant challenge in the country.

According to the Transnational Alliance to Combat Illicit Trade (TRACIT) report by Business Unity South Africa (BUSA), South Africa may have suffered tax losses of nearly R100 billion annually.

The report attributes the widespread trade of illicit goods to the disruptions caused by the Covid-19 pandemic.

“The pandemic provided ample opportunities for illicit traders to expand their operations significantly as government lockdowns, bans, and restrictions disrupted markets and led to shortages,” the report stated.

In response, PwC hopes that the upcoming budget will introduce new measures to tackle illicit trade, urge the government to ratify the World Health Organization’s protocol to combat illicit trade in Tobacco Products in 2024, and develop an effective track-and-trace system.

However, PwC predicts a straightforward increase in excise duties for alcoholic beverages and tobacco.

The government's current excise duty policy outlines increase of 11% for wine, 23% for beer, 36% for spirits based on weighted retail prices, and 40% for the price of the most popular tobacco brand.

“Budget 2021 announced a review of the policy framework for alcohol and tobacco (this was restated in subsequent budgets), and following the higher than-inflation increases in previous years, Budget 2023 announced a general increase in the excise duty on alcohol and tobacco in line with expected inflation,” PwC stated.

It is anticipated that an inflationary increase to excise duties will once again be announced in Budget 2024, pending the finalization of policy reviews.

Additionally, tax hikes are expected for vaping products. In 2022, the government introduced a flat excise duty for nicotine and non-nicotine vaping products at R2.90/ml, effective from 1 June 2023. PwC anticipates an inflationary increase to this duty.