OPINION | ‘Bad policy’ fuels rise of illicit alcohol in SA

SA is facing a silent but growing crisis: the rise of illicit alcohol.

While the public debate on alcohol taxation often centres on government revenue and public health, what is often missed is the unintended consequence of ill-designed policy – the rapid expansion of a shadow market that undermines both.

Today, legal alcohol in SA costs 37% more than illicit substitutes. That price gap is not a matter of consumer preference. It is a direct product of how we set taxes.

Every time excise increases outpace inflation, consumers are nudged away from regulated and taxed products towards the untaxed and often unsafe alternatives.

This is not just an industry challenge; it is a revenue issue for Treasury, a safety issue for communities, and a jobs issue for workers. Illicit alcohol is not a marginal phenomenon.

It thrives in townships and rural areas where incomes are stretched and where affordability is the single biggest determinant of choice.

For many households under pressure from rising food, fuel and electricity costs, shifting from a taxed bottle to an untaxed one is not a matter of preference but of survival.

The costs are profound. Government loses billions, which has been found to be R16.5bn annually in potential tax revenue. Legitimate businesses – from brewers to tavern owners – see their margins squeezed, which compromises the sustainability of their businesses.

And most worrying of all, consumers are exposed to products that are unregulated, sometimes toxic, and often sold without any regard for age restrictions or responsible consumption.

Excise taxes are meant to achieve two goals: raise revenue and discourage harmful drinking. But when applied bluntly, without regard for affordability or enforcement realities, they can achieve the opposite.

Consider the case of SA’s beer industry. Excise already makes up 57% of the cost of producing beer.

A proposed 20% increase in excise duty on beer and other fermented beverages would not just squeeze brewers – it would make legal beer prohibitively expensive for many consumers.

The predictable result? A surge in demand for untaxed, unregulated alternatives. Tavern owners find their customers drifting to cheaper, untaxed alcohol, undermining their businesses.

Farmers who supply barley and maize to the beer industry face reduced demand if legal production slows. Jobs along the value chain – from factory workers to truck drivers – are put at risk.

Illicit alcohol is not monitored for quality or safety. It often contains dangerous levels of methanol or other contaminants. It is sold in unlabelled containers, with no health warnings, no restrictions on underage sales, and no accountability.

In the pursuit of higher excise revenue, government risks driving citizens toward products that do far more harm. If the goal is to reduce harmful drinking and raise sustainable revenue, then policy must take affordability and enforcement seriously. That means first linking excise increases to inflation.

Predictable, inflation-based adjustments prevent sudden price shocks that fuel illicit trade.

Second, incentivising low-alcohol alternatives. Instead of punishing beer, policy should encourage the production and consumption of beverages below 3.5% ABV through lower tax rates.

International evidence shows this nudges both producers and consumers toward moderation, with real public health benefits. Third, strengthen enforcement. Excise reform must go hand-in-hand with cracking down on the illicit trade itself. That requires coordination between Sars, law enforcement, business, and communities. Stronger penalties for illegal production and distribution, coupled with consumer education campaigns, can help protect the legal market.

SA’s economic context makes this issue urgent. With GDP growth hovering below 2% and unemployment above 30%, every job and every rand of tax revenue matters.

The beer sector alone supports 249,000 jobs and contributes over R71bn to GDP, according to a 2022 study by Oxford Economics.

Undermining its viability with erratic excise hikes risks sacrificing real, productive economic activity in exchange for illusory revenue gains that may never materialise. More fundamentally, this is about trust in public policy.

Citizens need to believe that government decisions are made with their welfare in mind. If tax hikes simply push people into the arms of illicit operators, erode legal businesses, and fail to deliver revenue, that trust is broken. The rise of illicit alcohol is not inevitable. It is the product of policy choices.

By designing excise regimes that are fair, predictable, and evidence-based, SA can protect both revenue and public health while sustaining an industry that is central to jobs and growth.

The alternative – punitive hikes that widen the price gap between legal and illicit products – is a path to diminished revenue, unsafe consumption, and lost livelihoods.

In the fight against harmful drinking and fiscal shortfalls, the enemy is not beer. The enemy is bad policy that fuels the black market. SA has the evidence. The question now is whether it has the political will to act on it.