South Africa's alcohol taxation system requires urgent strengthening to address the devastating public health burden of harmful alcohol consumption. While National Treasury's proposed tiered excise structure represents progress, its thresholds are misaligned with current market realities and unlikely to reduce consumption. To effectively reduce alcohol-related harm, REEP proposes narrower tax tiers, higher uplift factors, and predictable above-inflation tax increases.

Introduction

On 13 November 2024, the National Treasury published its decadal discussion paper titled The Taxation of Alcoholic Beverages. On 6 November 2025, Treasury hosted the first of a series of online stakeholder workshops. 

Currently, beer and spirits are taxed per litre of absolute alcohol (AA), while wine is taxed per litre of beverage, regardless of alcohol content. While keeping beer taxed per litre of AA and wine taxed per litre of beverage, Treasury’s main proposal is to introduce tiers so that beer and wine with higher alcohol content are taxed at higher rates. By introducing tiered excise taxes based on AA, Treasury aims to encourage consumers to substitute towards lower- or zero-alcohol alternatives (demand-side effect) and to incentivise the industry to reformulate beverages to contain less alcohol (supply-side effect). There is no proposal to change the excise tax on spirits, which are currently taxed at double the rate applied to beer.

While we agree with the principle that higher-alcohol-content beverages should be taxed at a higher rate, the Research Unit on the Economics of Excisable Products (REEP) proposes an alternate placement of the tiers. We focus primarily on the beer proposal and briefly assess Treasury’s remaining recommendations.

Why excise taxes matter

Alcohol is a major public health problem in South Africa, contributing to violence, injuries and trauma presentations, mental disorders, infectious diseases, non-communicable diseases (NCDs), and premature mortality. Over 37,000 deaths annually (around 7% of all deaths) in South Africa are attributable to alcohol consumption. South Africa has the highest prevalence of foetal alcohol syndrome among 180 countries, estimated at nearly 600 cases per 10,000 people (6%). 

Excise tax increases raise prices, reduce alcohol demand, and are a World Health Organization ‘Best Buy’ policy to reduce NCDs. Global evidence concludes that pricing policies are highly effective in reducing alcohol-related harm. The overall price elasticity of alcohol demand is negative, with an average value of approximately −0.5, meaning that a 10% increase in alcohol prices is associated with a 5% reduction in alcohol consumption.

Alcohol prevalence

According to the 2022 National Dietary Intake Survey, half of adult South Africans drink alcohol (64% of males and 37% of females). Among drinkers, 47% engage in heavy episodic drinking, defined as six or more drinks on at least one occasion during the past month for men, and four or more drinks for women. Another survey found that among heavy drinkers aged 18 and older, beer was the most commonly reported primary beverage (58%), followed by cider (16%), wine (14%), and spirits (10%). Heavy drinkers consumed 94% of the total absolute alcohol. Given beer’s dominant market share and its role in heavy drinking, it should be taxed more effectively, particularly as it is currently taxed at half the rate applied to spirits.

Treasury's main proposal: beer tiers

Currently (2025/26), beer is taxed at a flat rate of R145.07 per litre of AA (grey dotted line in Figure 1). A litre of beer with 4% AA is subject to R5.80 excise tax, while a beer with 6% AA is subject to R8.70 excise tax. Although this structure encourages lower alcohol content, better designed tiers would amplify these incentives.

By introducing tax tiers, Treasury aims to amplify the incentive to reduce AA. Treasury appears to have been influenced by the experience of the Health Promotion Levy, where taxing the sugar content of sugar-sweetened beverages resulted in producers reducing sugar content to avoid the tax. Treasury proposes three tax tiers for beer: (1) 0.5% to <2.5% AA, (2) 2.5% to <9% AA, and (3) 9% AA or more (green line in Figure 1). In the first tier, the excise tax is the standard R145.07 per litre of AA, in the second tier, it increases to R174.08 per litre of AA (an uplift factor of 1.2), and under the third tier, to R203.10 per litre of AA (an uplift factor of 1.4). The selection of these thresholds was determined by technical factors related to the tariff books. 

These thresholds are poorly aligned with AA levels in the beer market because most beers (more than 95% of market share by sales volume) have an alcohol content between 4% and 6% AA (vertical grey shaded area in Figure 1). These thresholds are therefore unlikely to incentivise the alcohol industry to reduce AA content. 

Figure 1: REEP vs NT proposal for beer excise tax by volume (1 litre of beverage)

REEP's proposal: narrower tiers

To reduce AA consumption and related harm, we propose narrower tiers and higher uplift factors that strengthen incentives for reformulation (blue line in Figure 1, and Table 1). Our modelling assumes that the beer industry is willing and able to expand the market for lower-alcohol beer, as demonstrated by the long-term success of Castle Lite (4% AA).

We assume that a threshold at 3.5% AA would incentivise producers to reduce beers currently at 4% AA, and that a threshold at 4.5% AA would encourage reformulation of 5–5.5% AA beers. Using a tax simulation model adapted from tobacco excise modelling, REEP compared the impact of Treasury’s proposals with our research on AA consumption and government revenue (Table 1).

Treasury’s proposal is estimated to reduce AA consumption by only 1.9%, while increasing revenue by 17.7%. In contrast, the REEP proposal is estimated to reduce AA consumption by 15.7%, while still increasing revenue by 12.9%. Given beer’s 54% share of total AA, this implies an estimated 8.5% reduction in overall AA consumption (54% x 15.7%).

Table 1: NT vs REEP proposals: impact on consumption and revenue

Additional recommendations

While our main recommendation is to revise the excise tiers and uplift factors for beer, we note the following comments and recommendations:

Since 2012/13, the guideline excise tax burdens for wine, beer, and spirits have been 11%, 23%, and 36%, respectively, of the weighted average retail price To calculate these prices, Treasury relies on data from the alcohol industry, which gives the industry influence over excise tax outcomes, since their pricing decisions directly affect tax increases. Price and tax data indicate that, in recent years, excise duties have increased by slightly more than the inflation rate, while weighted average retail prices in some alcohol categories have increased by slightly less than the inflation rate. The alcohol industry has cited the exceedance of the guideline tax burden as justification for opposing further excise tax increases. Delinking excise tax adjustments from industry pricing decisions would eliminate industry concerns about rising tax burden percentages and reduce industry influence over excise tax levels. We therefore support abolishing the guideline tax burden across all alcohol categories.

We strongly support Treasury’s proposal to increase the alcohol excise taxes by four percentage points above the inflation rate for the next five to ten years. This will reduce alcohol affordability over time and also give policy certainty to the industry.

We support the proposal to introduce tiers so that wine with higher AA is taxed at higher rates, as follows:

• 0.5 - 4.5% AA taxed at R5.95/L of beverage (2025/26 rate)
• 4.5 - 9% AA taxed at R8.33/L of beverage (uplift factor: 1.4)
• 9 - 16.5% AA taxed at R10.71/L of beverage (uplift factor: 1.8)

Currently (2025/26), the excise tax on fortified wine is R10.71 per litre (1.8 times the rate of still wine), while sparkling wine is taxed at R19.04 per litre (3.2 times the rate of still wine). We recommend increasing the uplift factors for fortified and sparkling wine.

The review document does not address beer powder, a product that gained popularity during the COVID-19 alcohol sales ban, since the powder contains no alcohol before water is added. When water is added it is ready to drink within 24 hours and reaches an alcohol content of 5-7%. Since 2022, beer powder has been taxed at the same minimal excise tax as traditional African beer flour (R0.347 per kilogram). This rate has remained unchanged since 2001. Consequently, inflation has eroded the real value of this tax by more than 70% since its peak in 1997, significantly diminishing its deterrent effect. A new tax category should be created specifically for instant beer powder, with rates aligned to those applied to malt beer.

Anecdotal evidence suggests there are approximately seven leading low-cost producers of sugar-fermented beverages (SFBs) in the Western Cape. SFBs are made from cane sugar, yeast, and water, and sometimes contain cheap wine. SFBs are typically packaged in a clear plastic bottle, closed with a red screw top lid and colloquially called a ‘rooiproppie’ (‘red cap’). In principle, SFBs are subject to the same rate as spirits (R292.91 per litre of AA). However, their extremely low prices suggest that excise taxes on SFBs are not being paid. The South African Revenue Service should investigate tax compliance among SFB producers, as unpaid excise taxes represent a failure of implementation and enforcement, rather than policy design.

Alcohol revenue data show no evidence of a significant or growing illicit alcohol trade problem, despite vocal claims by the alcohol industry. Nevertheless, we agree with Treasury that coordinated action among revenue administration, law enforcement, regulators, businesses, and communities is essential to combat illicit trade.

Conclusion

Alcohol consumption imposes an enormous burden on South African society, contributing to more than 37 000 preventable deaths annually and fuelling violence, injuries, and chronic disease. Excise taxes are among the most effective policy tools available to reduce this harm. Treasury’s review of alcohol taxation presents a crucial opportunity to strengthen South Africa's response to harmful alcohol consumption. While we support the principle of tiered excise taxes based on alcohol content, the modelling presented here demonstrates that more targeted tiers are necessary to achieve meaningful reductions in consumption. We recommend adjusting the proposed beer tiers, abolishing guideline tax-burden percentages (11% for wine, 23% for beer, and 36% for spirits), and implementing predictable above-inflation tax increases. These interventions are critical to reducing preventable deaths, lowering healthcare costs, decreasing violence, and improving the well-being of South Africans.

Written by Nicole Vellios, Mxolisi Zondi & Corné van Walbeek, Econ3x3