Liquor’s cigarette warning: don’t turn tax policy into a mafia gift 

South Africa’s drinks industry is facing its most dangerous policy moment in decades, as illicit sales hit almost a fifth of total production.

Yet the government is proposing new restrictions on alcohol advertising, possible excise changes, minimum pricing and tougher provincial controls.

Industry insiders are extremely anxious that the drinks industry will go the same way as the illicit cigarette trade, now dominated by mafia-esque operators in South Africa after a similar campaign of tax and legislative crackdowns.

And there’s big money at stake: the current total excise income for the state from wine, beer and spirits is just over R50bn a year.

The danger for government is not that regulation is unnecessary. Alcohol abuse is a serious social problem, and no responsible policymaker can ignore its connection to road deaths, violence, child neglect and public-health costs. The danger is that South Africa may repeat the tobacco mistake: regulate the formal industry more and more heavily, while the illegal industry grows fat in the gaps, actually increasing consumption.

That is no longer a theoretical concern. British American Tobacco (BAT) South Africa’s decision to end domestic cigarette production by the end of 2026 has become the great warning flare over the entire “sin tax” debate. BAT has said illicit cigarettes now account for about three-quarters of the local cigarette market, leaving its Heidelberg plant operating at only 35% capacity and putting about 230 jobs at risk.

First cigarettes, now booze?

According to South African Breweries (SAB), illicit alcohol represents about one in every five alcoholic beverages sold domestically, or about 18%, with illegal products on average 37% cheaper than legal alternatives.

However, as one industry source put it: “Eighteen percent doesn’t sound a big number, but if you take only spirits, it’s 33% – one out of three. It is really becoming serious.”

The problem is particularly acute in white spirits, where counterfeiters can most easily mimic the appearance of legitimate products. But the effect spreads across the whole drinks industry because illicit products do not merely steal sales from one brand; they take away entire consumption occasions from legal beer, cider, wine and spirits.

It is also no longer a matter of informal operators quietly refilling bottles behind a tavern. The source described increasingly professional counterfeiting operations, involving warehouse-scale bottling, copied labels, copied cartons and imported glass designed to resemble legitimate branded bottles.

“These are not just shebeens fabricating illicit alcohol,” the source said. “These are really professional guys. When we arrest them, we see it is well organised.”

Brutal economics

The economics are brutally simple. On a bottle of spirits retailing for about R150-R200, the excise duty alone can be about R90. Avoid that, and the criminal producer has an instant and enormous margin advantage over the legal producer, which still has to pay excise, VAT, packaging, distribution, wages, compliance costs and normal business overheads.

This is exactly the same trap that caught tobacco. High tax, weak enforcement and squeezed consumers create the perfect illicit market. Then, once consumers become used to the lower illegal price, the legal market may never fully recover. As the industry source put it, tobacco moved from roughly a quarter illicit to three-quarters illicit over about a decade. “Now there’s no way back,” the source said. “Consumers are not going to pay back the price.”

That is the central warning for policymakers. South Africa does not have infinite capacity to regulate. It has finite police capacity, finite customs capacity, finite prosecutorial capacity and porous borders. A policy that assumes perfect enforcement is not a policy; it is a wish wearing a suit.

The policy pipeline is already crowded with considerations like minimum unit pricing or higher excise duties, as well as tighter advertising restrictions.

The department of trade, industry and competition (dtic), meanwhile, is reviewing the broader 2016 Liquor Amendment Bill, which is much wider than the 2025 private member’s bill introduced by the EFF. The 2016 version included proposals such as raising the legal drinking age to 21, broad-based BEE requirements, inspector powers and civil liability provisions.

But the dtic has recognised the problem, warning that an outright advertising ban could disadvantage new entrants, entrench established players and create unintended competition consequences.

Unpredictable risks

Treasury’s current 2026 budget proposal is modest enough on paper: alcohol excise duties rise broadly in line with inflation, at 3.4%. But the industry is worried less about one year’s adjustment than about the direction of travel. According to the industry source, excise has risen substantially above inflation in most of the past decade, and unpredictability has become one of the biggest operating risks in the sector.

Still, Treasury took the unusual step of publishing a discussion paper, “The Taxation of Alcoholic Beverages”, for public comment in late 2024. This proposes adjustments to the alcohol excise taxation policy framework, including the introduction of a three-tier progressive excise duty rate structure for wine and beer.

And a meeting held on Thursday between Treasury and players in the sector – like SAB and Heineken – was, apparently, constructive.

SAB is pushing for “fair, balanced and predictable tax reform that incentivises lower-alcohol products”, but vice-president of corporate affairs Zoleka Lisa says it’s “deeply concerned” by a proposed 20% increase in standard beer duty.

“South Africa cannot tax its way to better public health outcomes if illegal alcohol fills the gap. Every rand added to the cost of a legal product is a competitive advantage handed to illicit traders who pay nothing – no excise, no VAT, no compliance costs,” she says.

Heineken’s Carmen van Niekerk, who heads up regulatory affairs and policy, says any new tax regime must respond to a “complex set” of realities, like higher input costs, financial pressure on consumers, and pressure on legitimate producers and retailers.

This, for industry players, is the crux: before advertising bans are imposed, before excise burdens are ratcheted up, and before whole categories are equalised into higher tax brackets, government needs a credible illicit-alcohol strategy that actually works.

This would imply dedicated South African Revenue Service and customs capacity, stronger penalties, faster prosecutions, better border enforcement and practical routes for informal traders to become licensed and accountable.

Otherwise, South Africa risks designing a beautiful regulatory regime for a shrinking legal market, while the real market moves underground.

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_{Top image collage: Rawpixel; Currency.}