Sugar tax may be first of several ‘health promotion’ measures

New tax comes into effect next month and is expected to generate around R2 billion in revenue.
The final sugar tax rate could see R1.39 per litre of sugary soft drink being added to the existing price. Picture: Shutterstock

The introduction of the euphemistically called ‘health promotion tax’ – a tax on sugary drinks – is expected to generate around R2 billion in tax revenue.

The tax becomes effective next month (April 1) and it seems more “health promotion measures” may be heading South Africans’ way.

National Treasury said in the 2018 Budget Review a policy brief on the use of taxes to encourage “healthy choices” will be published shortly.

Jerome Brink, senior associate in Cliffe Dekker Hofmeyr’s Tax and Exchange Control practice, says to his knowledge studies done so far are inconclusive in respect of the causation between the imposition of the sugar tax and a reduction of non-communicable diseases such as diabetes.

“That said, one country which is often mentioned is Mexico, which has shown a decrease in the consumption of sugary beverages since the introduction of the tax,” he adds.

The final rate has been fixed at 2.1 cents per gram of the sugar content that exceeds 4 grams per 100ml. If one litre of “sugary soda” has about 106 grams of sugar the first 4 grams per 100ml are free. This means 40 of the 106 total grams of sugar is levy free. The balance is then subject to the levy at a rate of 2.1 cents per gram.

This equates to approximately R1.39 per litre of sugary soda which will be added to the existing price.

Brink says the new tax will be administered through existing customs and excise systems. “Since it is a new tax, one should be mindful that there will likely be some challenges and additional costs involved to administer and collect the tax.”

The South African Heart and Stroke Foundation had previously expressed its support for the tax. Gabriel Eksteen, health promotion officer at the foundation, nonetheless warned that sugar was not the only cause of obesity.

“In addition to our efforts in educating consumers, we need the food industry to provide healthier food options. Despite being aware of the health risks associated with high sugar consumption, many food producers continue to saturate the market with cheap sugar-laden products,” he noted in an earlier interview.

Eksteen told Moneyweb in an earlier interview that tackling obesity needs a comprehensive approach that addresses food accessibility and affordability, consumer education and marketing guidelines as well as safe and accessible places to exercise.

Some studies have indicated that consumers substitute sugary drinks for other sweet foods. But, says Brink, it may be premature to predict one way or another.

“One should always appreciate that every country is different with various socio-economic factors influencing consumer patterns. Tax is just one of the factors. One will have to wait and see the outcome insofar as South Africa is concerned.”

He says several countries have implemented the tax or levy on a slightly different basis. The main difference has been in the actual rate of the tax.

“While some of the studies have suggested that one requires a tax rate of 20% to effect any impact on consumption patterns, Mexico introduced an effective rate of tax of 10% which nevertheless saw positive effects.”

Brink expects the tax cost to be passed on to consumers. This will certainly be beneficial from their profit perspective. It will also be in line with the intention behind the need to impose the tax.

Keith Engel, CEO of the South African Institute of Tax Professionals, disagrees and says soft drink companies are loath to fully pass on all costs to consumers in this environment. 

“The costs will be shared. Companies are also repackaging their products in response.  At the end of the day, the real question is the negative symbolic value that this tax will have on the market, being that sugar is now being treated as a rough equivalent to cigarettes and alcohol.”

Engel says the tax will most likely have a more negative impact for the poor, as would any other price increase on food, given that food plays such a large relative role in their overall budgets.

He expects more sin taxes on other products to follow. 

Brink adds that soda drinks with their usual sugary content will probably still be available. Many producers will likely innovate, be proactive as well as react to changes in the market accordingly.

“Some of the large beverage companies have already began introducing lower sugary content beverages well before the introduction of the tax, given the continuous growth in health consciousness in our society,” says Brink.

The sugar content must be certified on a test report obtained and retained from a testing laboratory recognised by the National Regulator for Compulsory Specifications of South Africa.

In the absence of such a valid test report, a deemed sugar content of 20 grams per 100ml is assumed.

The South African Revenue Service has embarked on roadshows to address practical implementation issues on the coalface.

The registration and licensing process will commence thereafter with a view to ensuring all processes are in place on implementation day.

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Well as it happened in New York, they retrenched a lot of Coca Cola people and others in the soft drink industry. In fact the slogan became “Don’t drink soda, DRINK BEER”

“Health promotion tax” my foot. This is all about generating revenue. They couldn’t care less about your health, if they did they would be improving public healthcare which is a disgrace at the moment.

This sugar tax is essentially an added corporate tax on beverage companies disuguised as a “health promotion tax” to fool the public.

Furthermore taxation does not change people’s behaviour, I would be interested to know what effect the “sin taxes” have had on the rates of alcoholism and drunken driving in SA.

Coming soon: A “salt” and “red meat” tax

You are right. In countries where sugar tax was introduced the consumption dropped initially but returned to nearly the same level after a few months. Of course the sugar tax was not dropped after it was shown to be non-effective. What would happen to VAT and other tax receipts if by some miracle people would stop drinking sugary drinks and changed over to tap water (while it is still available here in the Cape)? What about the workers and their dependants working in these factories?

Your comment deserves a platinum medal, Dudley. I am voting for you in next year’s national elections.

What about the health of the environment – I say use the sugar tax to encourage the use of glass instead of plastic and motivate both the consumer and supplier to a healthier life all round!

A “health” tip from me: go and drink coffee or tea out of a styrofoam cup! (..shockingly still served at the odd conferencing venue, and some fuel stations shops / on-the-go convenience stores)

The biggest health promotion action by far would be to stop adverts for alcohol and de-branding of alcohol products – an absolute eventuality.

The problem with this is that when one thing is banned or gets taxed, manufacturers will start adding other artificial ingredients like aspartame which is just as bad or even worse for you.

The sugar tax is not a “health promotion” measure and was never intended to be – it’s a cash grab by a bankrupt government. They can only tax fuel so much so the ANC turned to sugar in its effort to squeeze the last few cents out of a struggling population.

The only phuques that the ANC gives about health is the health of its bank balance.

I quite agree that sugar is as dangerous to your long-term health as tobacco and alcohol.

Companies that produce products that are toxic to the community should be taxed at eye-watering levels. And their taxes should be used directly at the coal-face where the problems they cause, arise and then have to be dealt with by others who had nothing to do with creating this mess, but now have to pick up the pieces. While the culprits whistle all the way to the bank!

I would also like directors and senior management of these companies to be forced to come face-to-face with the negative consequences of their products on a deeply PERSONAL level, and work pro-bono over a weekend giving back to the communities they have raped with their toxic products.

Like work in a SAPS charge office in a poor area on a Friday and Saturday night dealing with victims streaming in from the effects of alcohol-abuse by their spouses etc.

Same at the hospitals with Road Accident victims from DUI.

And same at the schools on a Monday morning after the kids have had yet another “bad” weekend, and they and their mothers have been beaten up and couldn’t do their homework.

My wife was a teacher, and you’ve no idea what social insight you can get into the community and the families in them, from the kids’ Monday morning storytimes! Amazing and Sad in equal measures sometimes …

However, on the OTHER side of the track, it’s a very different storytime.

At THEIR Monday morning Sales and Production Meetings, the “suits” are completely oblivious to the harm their “products” are doing to society. And the only professional interest is how to increase the sales targets (… er … devastation and destruction) for the next week.

End of comments.



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