World, Africa

South Africa hikes sin taxes amid largest tax shortfall

COVID-19 pandemic-driven budget raises alcohol, tobacco taxes to promote public health

Hassan Isilow  | 24.02.2021 - Update : 24.02.2021
South Africa hikes sin taxes amid largest tax shortfall


South Africa’s finance minister Wednesday announced an increase of 8% in excise duties on alcohol and tobacco products to discourage their consumption and promote good public health.

“It is clear that excessive alcohol consumption can lead to negative social and health outcomes,” Tito Mboweni said in his budget speech in parliament.

He said consumers do react to price increase, and higher prices should lead to lower consumption of alcohol products with positive spinoffs.

The country’s tobacco and alcohol industries have been badly affected as the government prohibited the sale of these products for much of 2020 and early this year as part of measures to curb the spread of the coronavirus.

Smokers of cigars will now pay rand 7.71 ($0.53 cents) more for 23 grams of rolled cigars and a packet of cigarettes will now cost an extra R1.39 ($0.095). Consumers of spirits will also see increases of about R5 (about $ 0.34 cents).

Mboweni also announced an increase in fuel levies by 27 cents per liter, comprising 15 cents per liter for the general fuel levy, 11 cents per liter for the road accident fund levy and 1 cent per liter for the carbon fuel levy.

 Corporate, personal income relief

The minister, however, brought a sigh of relief to corporate and personal income tax payers as he announced the government would not introduce hikes in their taxes and other direct levies in a bid to ease financial pressure on businesses and households.

This year’s budget is submitted as the country recovers from its second wave of the coronavirus which has led to thousands of job losses and economic meltdown.

This year, South Africa is faced by its largest tax shortfall on record due to the pandemic which has led to low revenue collections as well as incentives given by the state.

“The corporate income tax rate will be lowered to 27% for companies with years of assessment commencing on or after April 1, 2022,” Mboweni said, adding: “This will be done alongside a broadening of the corporate income tax base by limiting interest deductions and assessed losses.”

He said the government will consider further rate decreases to make the country’s tax system more attractive.

Social grants increased

Mboweni further announced an increase of R30 ($2.07) in social grants given to elderly persons and the disabled, with care dependency grants going up to R1890 ($129.18) per month.

War veterans will also get an increase of R30 ($2.07) in their grants, with a monthly take home of R1910 ($132). The government also pays a monthly child support grant of R460 ($31.71) to every child.

The minister said R6.3 billion ($431 million) have also been allocated to extend the special COVID-19 social relief of distress grant given to those affected by the pandemic due to unemployment until the end of April 2021.

Mboweni said the government remains committed to ensuring that deserving students are supported through higher education, and National Treasury is working with the Department of Higher Education and Training to chalk out a policy and funding options for this purpose.

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