Presidency will respond to alcohol requests

President Cyril Ramaphosa’s lawyers have asked the Gauteng Liquor Forum to wait until the end of business on Friday (April 17) for a response to their letter requesting that he lift the ban on the sale of alcohol during the nationwide lockdown aimed at curbing the spread of Covid-19.

The forum sent the letter to the president over the weekend, threatening to approach the Constitutional Court if he does not lift the ban, arguing that it is “unreasonable and unconstitutional”.

The forum says it represents around 20 000 township shebeens and taverns.

The Presidency asked that it hold off going to the courts pending a meeting with the National Command Council and other relevant stakeholders this week in order to discuss the government’s economic assistance programme.

It said it should respond by the end of business on Friday.

Discussions

“The National Command Council, the Presidency and other relevant parties are meeting again this week, specifically to discuss the details of Government’s economic assistance programme,” it said, adding that it anticipates that the results of these discussions “may well have a bearing on the issues” raised in the letter.

The forum is not the only liquor industry body to raise concerns over the banning of the sale of alcohol during the five-week lockdown.

The South African Liquor Brandowners Association (Salba) sent a request to the government pleading with it to allow the responsible consumption of alcohol under very strict conditions.

Salba says the restrictions considered for an extended lockdown period should balance both the impact on effectively mitigating health risks and preserving the stability of the legal liquor industry.

Businesses at risk

It says the current trading restrictions that prohibit the sale of liquor in both off- and on-site consumption liquor sales, as well as certain exports, are placing the liquor industry at significant financial risk, giving rise to very low liquidity levels.

“Unlike other non-essential consumer goods, our industry has excise liabilities which some liquor firms cannot honour due to extremely low cash flows arising from a loss of both domestic sales and exports,” the proposal reads.

In its proposal to government, it highlights that South Africa liquor industry sales had been in decline prior to Covid-19 due to deteriorating economic growth conditions in the local market.

In an extended lockdown scenario, it says the wine, spirits, ready-to-drink and beer categories will lose R12.6 billion in wholesale revenue, along with a loss of R3.5 billion in excise tax revenue.

“Categories such as wine which has seen double-digit declines due to the 2017 and 2018 droughts face an overall industry collapse and lasting damage to the value chain due to farms exiting or facing liquidation,” it says.

It warns that the impact on the agricultural sector in the form of farm liquidations and job losses will be felt for years to come without some relaxation to the current trading restrictions.

“Our complex value chains mean that suppliers of packaging material, logistics partners and other related services will also be negatively impacted by the ban of local sales and exports,” the proposal reads.

Salba’s recommendations

• Liquor sales to be allowed only in off-consumption sales outlets, including online platforms, which will limit travel by consumers;
• Licensed taverns and holders of micro-manufacturing licences should be granted a special dispensation to operate strictly as off-consumption outlets subject to the strict social distancing requirements;
• Trading between 09:00 and 18:00 on weekdays and 09:00 and 16:00 on Saturdays, with no liquor sales on Sundays and public holidays;
• Prohibition on price promotions which act as a direct incentive to purchase more liquor volumes at lower cost and the offering of liquor products for free;
• Hand sanitiser to be available at outlets to encourage hygiene among consumers and retail employees; and
• The number of patrons allowed in an off-consumption liquor outlet to be limited to a maximum of one person per square metre.

Moral obligation

Salba says it understands that it is its moral obligation to fully support the South African government in its attempts to stop the spread of Covid-19. However, it calls on the government to loosen the regulations.

“We are in full agreement that the responsible consumption of alcohol should only be allowed under very strict conditions and we are very sensitive to the requirements of government’s strategy to effectively contain the Covid-19 pandemic in South Africa,” it says.

It is aware of the societal risk that excessive alcohol consumption poses to adhering to social distancing rules, the prohibition of gatherings, and general compliance with the lockdown rules.

“The restricted trading recommendations we propose have been designed to assist in mitigating these health and societal risks whilst balancing the urgent need for industry stabilisation and reducing illicit trade,” Salba says.

It adds that the current prohibition on all liquor exports should be terminated with effect from midnight on Thursday (April 16).

Another non-essential body that has spoken up against the ‘rigid ‘lockdown regulations, is the South African arm of British American Tobacco (BAT), which two weeks ago also urged the government to reconsider its ban on cigarette sales during the lockdown, saying it would have unintended consequences as people hit the streets to feed their cravings.

Brewing a black market

Tax Justice South Africa founder Yusuf Abramjee adds to this, saying that the ban encourages the movement of people and illicit trade.

“The ban is dangerous in so many ways, it is encouraging movement, encouraging looting, impoverishing people who are paying sky-high prices, and impoverishing the country when it needs the money most. All this is occurring when the only stated objective is to limit the movement of people.”

Abramjee says because 11 million smokers can’t buy cigarettes in the stores they visit for food, they are forced to seek them elsewhere and may spread Covid-19 unnecessarily.

“Every day of the lockdown, the nation is losing more than R35 million in lost excise duties on cigarettes alone, money that is desperately needed by government to fight this crisis,” says Abramjee.

“Instead that money is going to criminals who are charging inflated prices on the black market and exploiting the most vulnerable.”

Tax implications

Bernard Sacks, tax partner at Mazars, says the banning of the sale of tobacco products could have widespread effects on tax collections in South Africa, as the black market is fuelled.

For the 2020/21 period it is budgeted by National Treasury that the South African Revenue Service (Sars) would collect R14.4 billion from cigarettes and tobacco, and R0.5 billion from pipe tobacco and cigars in the form of excise duties.

Sacks says the banning of tobacco is also likely to create an ‘underground’ industry – from which it is unlikely that any taxes will be collected.

He says in the past the illicit tobacco industry – with emphasis on cigarettes – has left a gaping hole in excise duties, and probably value-added tax (Vat).

Based on a report issued by the Tobacco Institute of Southern Africa (Tisa) during 2019, the illicit tobacco economy cost the fiscus in excess of R32 billion in tax revenue between 2010 and 2017.

However, another tax manager at Mazars, Tertius Troost, points out that this does not consider the Vat that is levied on the sale of these products.

“The total amount projected to be collected is not insignificant. The banning of these products would [influence] revenue collection, additionally, we could see [a] further flare-up in the illicit tobacco economy – something that Sars has been struggling to get under control,” says Troost.

National Treasury’s figures could be revised in October 2020 (during the medium-term budget policy statement) and only at this time will the true impact of the lockdown and Covid-19 be seen.

“We are bound to see National Treasury looking to borrow more money in order to fill the tax revenue gap that will arise,” Troost says.

He notes that one should remember that the fiscus will not be collecting excise duty or Vat on other non-essential items such as alcohol, therefore the tax revenue will be adversely affected over a broad range of tax revenue income streams – not only excise duty on tobacco products.

Read: South Africans urged to ‘endure a little longer’ as lockdown extended

On Thursday night last week (April 8) President Cyril Ramaphosa extended the lockdown a further two weeks – effectively to Friday, May 1, it means the purchasing and selling of liquor are still prohibited.