A bubble is an economic cycle
Sugar Tax
Is it good for us?
2018-01-23
A bubble is an economic cycle
“This feels like a victory for Britain’s children” (celebrity chef Jamie Oliver commenting on news that a sugary drinks levy will be introduced in the UK in 2018).

Tax increases are on the way and Treasury has signalled that a sugar tax (more correctly, a “Health Promotion Levy”) will be levied from 1 April 2018. As with all new taxes, emotions have been running high.

Much of the debate centres on whether the tax is simply a revenue-generating exercise or whether it will bring medium to long term health benefits to South Africa.

Recent tax increases have come mainly from an increase in the personal income tax rate and the fuel levy. Spreading the tax net wider will help Treasury to raise additional revenue. The tax will be levied at 2.1 cents per gram of sugar content that exceeds 4 grams per 100 ml. The passing of the legislation follows exhaustive negotiations, and public hearings which included NEDLAC (National Economic Development and Labour Council).

How will prices rise and what does the sugar industry say?

The proposed tax is estimated to add up to 11% to the cost of sweetened soft drinks such as Coca-Cola. This is in contrast to the initial proposal which was 20%, plus items such as 100% pure fruit juice have now been excluded.

The sugar industry, which opposed the levy, has been under pressure since the turn of the century and 20,000 jobs have been lost, with the industry saying now that another 3,129 jobs will be under immediate threat and 20,000 more in 5 to 7 years. There have also been predictions that companies like Coca-Cola will cut investment leading to further job cuts.

What does the health industry say?

  • A sugar tax is one of the cornerstones of the Department of Health’s determination to reduce noncommunicable diseases (NCDs) such as obesity, diabetes and heart disease.
  • The Department sees a clear link between NCDs and sugar consumption, although this supposed correlation is strongly disputed by opponents of the levy.
  • NCDs are the leading cause of death in low to middle income countries.
  • South Africa has the highest incidence of obesity in Africa.
  • We are among the top ten consumers of soft drinks in the world.
  • Diabetes alone killed 25,000 people in 2015, whilst diabetes, strokes, heart diseases and other obesity related conditions cause 55% of deaths in South Africa.
  • India, Portugal, Saudi Arabia and Thailand have introduced taxes to combat NCDs in 2017. More than 30 countries have sugar tax legislation in progress.
  • Key research in these countries is that there were minimal job losses (Mexico) and it reduced consumption of sugar drinks by 10%.

In conclusion
Treasury forecasts an additional R1bn to R1.5bn in annual revenue from the levy. Licensing and registration of manufacturers of sugary beverages will take place from February 2018. On balance the consensus seems to be that a sugar-sweetened beverages tax will bring in revenue to the fiscus (potentially limiting income tax increases) and is likely to have health benefits. Parliament is aware of potential retrenchments and will be monitoring the impact of the tax on the sugar industry.