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Cape Town - The South African wine and brandy industry welcomed a review of concessions from government on the latest excise duty increases, saying it revealed a greater understanding of the industry and its challenges.
Excise hikes of 7% on natural wine, 7% on sparkling wine and 8.5% on brandy were announced by the Finance Minister Nhlanhla Nene in his budget speech.
“The above is the result of continuous open dialogue between industry and various Government departments around the unique challenges facing wine producers and cellars,” said Rico Basson, managing director of VinPro, the representative organisation for close to 3 500 wine producers and cellars.
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Basson added that it is encouraging to see that government alcohol tax reforms under consideration include providing excise duty relief to wine-based spirits such as brandy, as well as a review of the way excise duty on sparkling wine is calculated.
The South African wine and brandy industry contributes significantly to the country’s gross domestic product (GDP) and has close to 300 000 employees.
The industry aims to grow its contribution to the South African economy, as part of the Wine Industry Strategic Exercise (Wise) – a new strategic framework striving towards an adaptable, robust, globally competitive and profitable wine and brandy industry.
“Collaboration with and support from government, including a beneficial tax regime, will be key in achieving these objectives. We hope to build on this going forward,” said Basson.
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The South African brandy industry has welcomed the indication from government that excise duty increases are under review, saying it revealed a greater understanding of the industry and its challenges.
An excise hike of 8.5% on brandy was announced by Nene during his budget speech last week.
Nene added that other reforms under consideration include providing excise duty relief to wine-based spirits (like brandy). The rationale is that brandy is at a cost disadvantage compared with other forms of alcoholic spirits, because it takes 4 to 5 litres of wine to produce a litre of brandy.
“The above is the result of continuous open dialogue between the brandy industry and various Government departments around the unique challenges facing wine producers and cellars,” said Christelle Reade-Jahn of the South African Brandy Foundation.
“As such, the South African brandy industry has a symbiotic relationship with the wine industry, increasing local manufacturing value and stimulating local job creation.”
The market demand for brandy also has a significant impact on the primary wine producers in South Africa. Recent research by the Bureau of Economic Research (BER) indicated that for every one percent of increase in South African brandy sales volumes, the price of distilling wine to South Africa’s grape producers increases by 0.9%.
“A growth recovery of the SA brandy industry will therefore positively influence the overall profitability of South African wine producers, who are significant local employers. The economic value added multiplier for South African brandy has been estimated at 1.30, the government tax multiplier at 1.44 and the employment multiplier at 6.85," said Reade-Jahn.
"This shows that for every R1m increase in the demand for brandy, economic value added in the economy will increase by R1.3m, government tax revenue from excise and VAT will increase by R1.44m and 6.85 jobs will be gained. The economic growth potential from a world class local product such as South Africa’s brandies is substantial.”
Reade-Jahn also added that the cost of producing a brandy to South Africa’s high standards was far higher than that of spirits produced from grains or sugar cane.
“Grapes are a more expensive raw material compared to maize or sugar cane. South Africa’s legal requirements for the production of brandy are superior to most other brandy-producing countries. This gives the industry the ability to produce brandies of world class quality.”
