Will the R100 spirits tax push consumers to the black market?

As South Africa braces for the unveiling of the 2026 Budget Speech, Diageo South Africa has raised alarms over a potential increase in excise duties on spirits that could push the government tax past the significant R100 per 750ml bottle mark.

The proposed tax hike, expected to be announced by the Minister of Finance, Enoch Godongwana, is likely to intensify financial pressures on consumers already grappling with the high costs of alcoholic beverages.

The 750ml bottle serves as the primary unit size for the majority of spirits on the market—including brandy, gin, vodka, whisky, and rum.

With current taxes approximating R100, government duties constitute a staggering 55-65% of the retail price for mainstream spirits products.

Sibani Mngadi, Corporate Relations Director at Diageo South Africa, told Business Report, “We believe there is no room for consumers to absorb further increases in the statutory component of the price.”

To put the increase into perspective, the tax on spirits essentially doubled from R52 per bottle in 2016.

If the trend continues, the looming excise tax could mark a significant burden on consumers, further prompting them toward the illicit market, according to Diageo.

"The rise in taxation has inadvertently fostered a thriving black market for spirits, with illicit trade now accounting for 18% of the overall alcohol market. This criminal network offers smuggled and counterfeit spirits at prices less than half of legitimate market rates. Shocking statistics from a recent 2025 Euromonitor study reveal that illicit trade in spirits results in an astounding R11 billion loss in tax revenue for the South African government each year," Diageo said in a statement on Thursday. 

In light of these concerns, Diageo said it is calling for a moratorium on excise tax increases until the government finalises its review of the excise tax policy.

"The Treasury’s own policy review document has warned against further adjustments, noting that spirits are already disadvantageously taxed compared to other categories of alcoholic beverages," Diageo further stated.

In a bid for fairer taxation, Mngadi said that if excise tax is designed to reduce overall alcohol consumption, a uniform rate based on absolute alcohol content should be applied across both distilled and fermented beverages.

"This approach may create a more equitable framework for consumers while also addressing the issues fueling the illicit trade," Mngadi added. 

Charlene Louw, CEO, Beer Association of South Africa, told Business Report that as the Budget approaches, with the National Treasury considering another above-inflation increase in excise duties, is an issue of growing concern to South Africa’s beer industry.

"Above-inflation increases place further pressure on already thin margins, stall investment, and undermine long-term planning across the beer value chain," Louw said. 

"Beer is a mainstream, socially embedded beverage enjoyed responsibly by millions of adults, and the sector accepts its tax obligations. What we are calling for is simple: fairness, reasonableness, and predictability — a CPI-linked excise framework that gives producers certainty, protects jobs, and enables investment," she added. 

The consequences of over-taxing

Louw added that in last year's Budget, excise tax on beer increased by 6.75%, more than double the new CPI inflation target of 3%.

"This placed further strain on an industry that makes a significant contribution to South Africa’s economy and, at the same time, fuels the growth of the illicit alcohol trade. Meanwhile, beer producers’ input costs have risen faster than inflation for several years. Between 2000 and 2024, brewers’ total cost inflation was 38.2%, compared with CPI of 25.1%. This margin compression limits expansion, delays recovery, and places small brewers under particular pressure," Louw said. 

"The reality is that beer companies, large and small, already carry a double tax burden: corporate income tax and excise duty. While government may argue that excise is meant to influence consumption, the data shows a more troubling outcome. Beer is largely consumed by middle- and lower-income South Africans who are already under severe financial pressure. Continued price increases on legal beer do not meaningfully curb consumption, they simply shift demand toward cheaper, unregulated, and unsafe alternatives," she said.

Louw further said that certainty in excise policy allows companies to plan ahead, invest with confidence, and continue driving employment across agriculture, packaging, logistics, retail, and hospitality.

"Our call to government is clear:

• Maintain CPI as the benchmark for annual excise adjustments, restoring fairness and predictability.
• Adopt a predictable, multi-year excise framework aligned to CPI, to give brewers and investors certainty, support planning, and protect jobs," Louw added. 

BUSINESS REPORT