Tariff hikes will hurt wine, brandy industry

Producers say above-inflation increases will hamper entrepreneurship, job creation

THE WINE and brandy industry is concerned about the increases in excise duty that were announced in the Budget last week. The South African Brandy Foundation said the excise duty hikes for brandy could be a major setback for producers and impede entrepreneurship, training and job creation.

Christelle Reade-Jahn, the foundation’s director, said the above-inflation hikes had come just as the industry was seeing the first green shoots of recovery after many lean years.

She said the excise duty for blended brandy would rise by 8.5%, resulting in an increase from R175.19 a litre to R190.08 a litre. Potstill and vintage brandies, which have earned widespread international acclaim, would be even harder hit, with a 14.6% tariff increase, from R149.23 to R171.07 a litre.

“Not only are these new tariffs significantly above inflation, but they could also impact the trajectory of the industry’s recovery path. The granting in 2016 of a 10% lower differential excise tariff for potstill brandy compared with other spirits has given this premium brandy a much-needed boost. Now, the reduced differentiation for potstill brandies could dent our initial headway in developing the craft sector and make it more difficult to bring additional craft players on board,” she said.

Reade-Jahn said that, at its peak, South Africa’s total annual brandy consumption was close to 49 million litres. With the withdrawal of the brandy tax rebate in 2006, sales began to plummet year on year, falling to just over 30 million litres in 2015.

“Brandy is a highly labour-intensive industry and thus a key job generator in the Western Cape. We need to protect and grow these jobs and encourage South Africans to buy local, knowing that our brandies are regarded as world-class.”

Reade-Jahn said that, after extensive lobbying by the industry in 2016, the Ministry of Finance introduced the differential relief, stimulating a slow but steady recovery for the industry, and consumption had reached almost 33 million litres a year.

“Buoyed till now by the fledgling recovery, the foundation had been able to establish an entrepreneurial hub to develop a craft brandy movement. Through its producer network, it had also been creating training, mentoring and internship opportunities for new entrants to the industry,” said Reade-Jahn.

Rico Basson, the managing director at Vinpro, said excise duty increase was 8.5% on wine, including sparkling wine, and 6% on fortified wine.

“The above-inflation excise tax is extremely disappointing, especially given the fact that the industry reached, and even exceeded, the tax incidence targets agreed upon in 2014,” said Basson.

He said production costs had doubled over the past decade.

Basson said the average grape producer did not operate at a sustainable profit margin and more than a third operated at a loss.