Diageo SA pushes back against excise tax hikes, warns of illicit trade surge

Premium alcohol producer Diageo South Africa has urged the government to focus on strengthening enforcement against illegal trade rather than raising taxes. 

Diago SA owns brands including Johnnie Walker, Tanqueray and a stake in Moët Hennessy.

Euromonitor estimates that the government loses R11.3 billion in tax revenue annually due to illicit trade.

Read: Sars boss speaks out against tax hikes – again

Diageo noted that last year’s above-inflation excise tax increase of 6.7% failed to deliver the expected revenue growth. Instead, the South African Revenue Service collected only 3.4% more in spirits tax revenue as legal sales volumes declined.

“Rather than increasing taxes, the focus should be on strengthening Sars’s capacity to combat tax evasion and recover the more than R11 billion lost annually to illegal alcohol trade,” says Sibani Mngadi, corporate relations director at Diageo SA. 

“This approach would not only protect the legal alcohol industry but also boost government revenue without burdening consumers or encouraging illicit activity.”

In its proposed but not yet tabled 2025 Budget, the Treasury aimed to increase tax for all alcoholic categories by 6.83%. 

“Any above inflation hike in excise will deal a damaging blow to the alcohol industry, which supports hundreds of thousands of jobs and generates billions in revenue for the government,” says Diageo. 

Beer and Wine industry concerns

Different alcohol sectors have condemned the above-inflation excise tax increase. Last week, South African Breweries (SAB), speaking for the beer sector, said the industry has been very consistent when engaging with the National Treasury and parliament around excise increases and that they should be more or less in line with inflation.

Read/Listen: ‘Excise increases should be in line with inflation’ – SAB

The reason for this, says SAB CEO Richard Rivett-Carnac, is that when there are above-inflationary increases, excise becomes a significant cost for the industry. It makes it very difficult for the industry to plan, invest, and attract long-term investments.

The second reason is that “the higher the excise tax is, the more incentive there is for illegal producers to produce illicit alcohol,” says Rivett-Carnac. 

The wine industry also challenged the excise tax hike, saying it could drive consumers toward illicit alcohol markets, mirroring trends seen in other sectors, such as tobacco, where illicit trade now accounts for nearly 65% of sales. 

Read: Wine industry challenges proposed 6.83% tax hike

Diageo noted that in November 2024, Treasury published a review document entitled Taxation of Alcoholic Beverages, which acknowledged that spirits are disproportionately taxed compared to other alcohol categories. 

Mngadi says the Treasury has gone against its own recommendations and research by proposing a tax increase for spirits. He comments that illicit trade has reached shocking levels in the country, and the government’s excise decision will turn it into a full-blown crisis.