Government milks wine industry

The wine industry welcomed concessions made in excise duty hikes, as announced by finance minister, Pravin Gordhan, in the national budget.

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However, according to Rico Basson, executive director of VinPro, the increases were higher than inflation. Gordhan announced that excise duties were to increase by 8% on wine and 10% on brandy for the 2013/2014 financial year. Basson said this would not relieve the cost pressure on wine producers which amounted to more than 20% year-on-year, and was largely driven by farm labour minimum wage increases.

This was after the minister announced an increase in the benchmark for spirits last year from 43% to 48%. This is excise duty plus VAT expressed as a percentage of the average retail selling price. Basson said government income from excise duties on the wine and brandy industry amounted to R2,8 billion in 2012 (R1 billion for wine and R1,8 billion for brandy).

“Add VAT to this figure and government earned R4,7 billion from the industry in 2012. Wine producers have earned less from the industry than government (R3,7 billion in 2012) for the past eight years. “This calls for government support within the policy framework, in order to address the imbalance between economic realities and socio-economic pressure,” he said. Basson said the wine industry received little direct financial support from government.

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Statutory levies paid by producers amounted to R53/ton, or a total of R72 million annually, while direct government support for the industry amounted to R8/ ton, or R11 million per year. There were 279 000 people employed in the industry. Research showed that every 1% increase above inflation in retail prices of spirits, wine and ready-to-drink beverages would lead to the loss of 2 000 jobs, said Basson.

Consequences of excessive excise increases were more illicit trading and excise evasion on spirits. Basson said more than 100 million litres of illegal ales was sold yearly and illicit trading had increased since the 20% hike in 2012. The wine industry submitted a plea to Treasury for nearer to inflationary increases.