Diageo warns of illicit liquor during festive season which cost the country billions in tax
Durban - Leading international spirit maker Diageo says the South African Revenue Service (Sars) is losing out on R11 billion in excise tax revenue a year due to a significant rise in the illicit liquor trade.
According to the company, since the implementation of the Covid-19 lockdown, which prohibited and restricted alcohol sales, the trend toward illicit alcohol has grown.
Diago, which produces popular spirit brands including Smirnoff, Captain Morgan, and Gordon’s London Dry Gin, announced that it had increased its local production capacity to represent more than 65% of its overall sales volume in South Africa.
However, the company said the SA spirits sector was facing a serious challenge of illicit alcohol, which did not only pose a threat to the profitability of the sector but to the lives of many citizens
The company warned the public to be aware of illicit alcohol that could pose a threat to their lives during the festive season (and urged the public to buy alcohol only at licensed outlets)
Diageo South Africa corporate relations director Sibani Mngadi said during a media tour of the company’s spirits production plant at Isipingo that spirits was the segment of the alcohol sector most adversely affected by the growth in illicit trade.
With the counterfeit syndicates fuelling crime and lawlessness, Mngadi said the spirits sector was working with law enforcement agencies including the SA Police Service and the SA Revenue Service (Sars) to curb the problem that had become rampant in KwaZulu-Natal and other provinces.
According to a 2021 study released by international research company, Euromonitor, Sars was losing R11.3bn a year in tax revenue as a result of smuggling and the production of counterfeit alcohol which had grown to 22% of the overall alcohol market since the Covid-19 lockdown.
“Law enforcement is but one half of the solution. The other half is for alcohol tax policy to consider the weakening consumer spending in the annual increases in excise tax for spirits.
“Excise tax currently constitutes 50% of the average retail price for spirits products which gives non-tax paying smugglers and counterfeit producers a great advantage to undercut tax-paying, legitimate brands,” said Mngadi.
Mngadi said Diageo SA alone was paying more than R4.3bn in excise tax to the government for its portfolio of locally produced and imported spirits brands.
“While the market has stabilised post Covid-19 lockdown, the spirits sector is facing a serious problem of illicit trade. The five prohibition of alcohol sales over the two years of the Covid-19 lockdown allowed for significant growth in operations of illicit traders, with sophisticated sourcing of input materials and advanced logistics to push their products into the market.”
SUNDAY TRIBUNE