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Tax on tobacco, alcohol and cool drinks works well

We are making healthier choices, because people respond to financial incentives.
Image: Shutterstock

If National Treasury doubled the excise duty on sugary cool drinks from the current level of around 10% to the 20% that experts proposed when SA first raised the subject back in 2013, it could raise billions of additional revenue to help fund the fight against Covid-19.

This is the view of Karen Hofman, director of the South African Medical Research Centre for Health Economics and Decisions. A level of around 20% is also advocated by the World Health Organisation (WHO).

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The current health promotion levy (HPL) imposes a tax of 2.21 cents per gram of sugar in beverages that contains over 4 grams per 100 millilitre, which amounts to a tax rate of approximately 10% to 11%. The current levy adds about 46 cents to the price of an average can of cool drink.

Although the so-called sugar tax was only introduced two years ago, figures show that it is working. “And the huge job losses that industry predicted did not happen,” says Hofman.

The bottom line is that the addition of tax on unhealthy products – like tobacco, alcohol and cool drinks that contain a lot of sugar – increased their prices and people bought fewer of them.

Quoting several surveys, Hofman says that the purchase of sugary drinks declined by 51% by volume and sugar intake decreased by 29%.

A study in Soweto found that teenagers and adults that used to consume a lot of sugary drinks, reduced their consumption from 10 cool drinks per week to only four after the first year of the sugar tax.

These figures are significant if one considers the prevalence of obesity, as well as its dangers and associated costs.

“Obesity rates in SA are rising. In 2018, 15% of men and almost 40% of women were obese, or 27% of the total population,” says Hofman, adding that children who drink a tin of cool drink every day are 55% more likely to develop obesity, and 70% of them will became obese adults.

Read: Food systems need to change to promote healthy choices and combat obesity

Obesity is one of the top risk factors that leads to premature death from cardiovascular disease and diabetes, which together account for 51% of all deaths in SA.

During a discussion organised by the Healthy Living Alliance (Heala), Hofman explained that it is in particular sugar in liquid form that increases the risk of obesity, diabetes, hypertension, cardiovascular disease, many forms of cancer and teeth decay.

She says medical and indirect costs associated with diabetes and hypertension are huge, mentioning a figure of some R13.2 billion per annum.

SA cannot afford this. Government spending on healthcare was budgeted to increase from just over R190 billion in the 2017/18 tax year to more than R240 billion last year, before additional spending was added due to the Covid-19 pandemic, which is bound to continue this year too.

Heala points out that global experience has shown that being obese increases the risk of dying from Covid-19 by almost 50% and more than doubles the risk of being hospitalised.

Hofman says that the sugar tax not only promotes better health, but also raised R5.4 billion in tax revenue for government since its introduction. This would have been enough to finance SA’s initial payment for Covid-19 vaccines from the Covax facility almost 20 times over, according to Heala.

In addition, Hofman advocates that government increase the tax rate on sugary drinks to 20% and extends it to fruit juice too – to raise more money and to make SA healthier.

“Fruit juice is not a healthier option. It contains even more sugar than cooldrink. We should rather eat our fruit,” says Hofman.

Heala head Lawrence Mbalati agrees, saying that Treasury doubling the health promotion levy to the 20% originally proposed would then net government around R2 billion to help fund the fight against Covid-19.

“This is a watershed moment for the country,” Mbalati explains. “Government revenues are under immense pressure and funding the fight against Covid-19, including vaccines, remains critical.

“An increase in the health promotion levy to 20% will raise additional revenue in the short-term. In the long-term, we know that a health promotion levy of 20% will reduce the amount of sugar people eat, decreasing their chance of developing conditions such as diabetes, obesity and high blood pressure that also put people at a higher risk of dying from Covid-19,” says Mbalati.

“The health promotion levy has been an outstanding success. We want a healthy society and the (sugar) tax proved to be an effective incentive. People reduced their sugar consumption and producers reduced sugar content and product sizes,” says Sachs.

Incentive healthy behaviour

“Excise duties work,” says Corné van Walbeek from the Research Unit on the Economics of Excisable Products at the University of Cape Town, referring to the age-old economic principle that people respond to incentives.

He says that excise duties change consumer behaviour, as well as that of producers, if designed properly and implemented effectively.

He presents decades’ worth of data to prove the effectiveness of excise duties, referring to taxes on alcohol and tobacco. Very interestingly, he mentions that income tax did not exist for ages, but that tax has been levied on specific products for centuries.

Changes in tax on alcohol

The early 1990s saw an important change in the focus of excise duties, says Van Walbeek. “The aim of these taxes changed from that of collecting revenue to changing consumer behaviour.

“In the case of alcohol, the tax structure was changed from taxing the volume of the drink to a tax based on alcohol content. Since 1990 the taxes were raised sharply,” says Van Walbeek.

Excise duties on beer, spirits and on cigarettes

Source: Research Unit on the Economics of Excisable Products, University of Cape Town

It had the desirable effect. Van Walbeek’s figures show that the consumption of cigarettes declined significantly, while that of alcohol declined from around the equivalent of nearly 10 litres of pure alcohol per person per annum in 1997, to less than 8 litres currently.

“The increase in prices had a very real effect on consumption, while it also changed production. Producers had the incentive to reduce alcohol content,” says Van Walbeek. He mentioned that spirits with an alcohol content of around 38% are becoming more common compared with the norm of 43% alcohol a few years ago, while all the major beer brewers offer light beers with lower alcohol content (around 4% compared with the usual 5%).

The effect of tax on cigarettes was more profound, because the taxes are much higher. Total tax payable on a packet or 20 cigarettes is currently R17.40, including VAT. On some brands, the tax is equal to 80% of the purchase price.

Rise and fall of cigarette use


Source: Research Unit on the Economics of Excisable Products, University of Cape Town

Cigarette consumption increased strongly from 1960 to 1990, because excise duties and selling prices decreased steadily in real terms. Van Walbeek’s figures suggest that cigarette consumption increased nearly fourfold from 1960 to 1990.

Government changed its stance from 1994, setting itself the goal to reduce cigarette consumption and duties increased sharply. Consumption fell by more than 50%.

Van Walbeek admits that the increase in duties, especially on cigarettes, stimulates illicit trade. His figures suggest that illicit trade in SA increased to 400 million packets per annum, or around one third of total sales. He says that illegal sales were “off the charts” during the tobacco ban in 2020.

Read:
Cigarette war goes radioactive (Jan 2021)
SA has the world’s biggest illegal tobacco trade: Batsa (Aug 2020)

Tax expert and former head of National Treasury’s budget office Michael Sachs agrees. He says that one needs to be careful about “perverse changes” such as the illegal cigarette trade due to high excise duties.

He says the key to success is to design the correct tax structure, such as targeting sugar and alcohol content in beverages. And a blanket tax on cigarettes: “All cigarettes are bad,” says Sachs.

Taxation is political, says Sachs, but there is no doubt that government is facing a funding crisis and there are unusual pressures on the health sector, justifying health taxes.

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It never cease to amaze me that sugar gets the blame for obesity and the very high calorie of mielie pap — the staple in SA is never mentioned by “the experts”.

I think it is much more concentrated in fast foods. In the past you didn’t see fat kids like today.

Senzo just for comparison:
100g Mieliepap = 340 calories (that is one helping)
100g sugar = 386 calories (that is a whole cup full) -Doubt if anyone consumes that much in a day.

Pre-diabetes, insulin resistance, diabetes and some forms of dementia are the symptoms of carbohydrate poisoning. Foods that are higher up on the Glycaemic Index or have a high glycemic load are poisonous to humans. It is not only about the calories, it is about what the food does to the endocrine system.

The regular consumption of carbohydrates stimulates the secretion of the aromatase enzyme. This enzyme aromatises testosterone into estrogen. Testosterone levels decrease, estrogen levels increase, the metabolism slows down, the body is less anabolic and the muscles do not need the glycogen, causing insulin to rise to force the glycogen out of circulation into fat cells. It causes catabolism, the exact opposite process that results from the use of anabolic steroids. Bodyfat is metabolically active. It acts as an organ. It secretes more aromatase enzyme to lower muscle mass and increase fat mass further. Skinny people stay slim even when they regularly eat more than fat people. Aromatase levels determine body fat.

Carbohydrates like sugar have the opposite effect of anabolic steroids. The overconsumption of carbs is similar to using “catabolic steroids”. Estrogen is poisonous above certain normal levels. Estrogen dominance drives metabolic syndrome and increases the risk of dementia. The good news is that dementia has been proven to be a lifestyle disease, not a genetic disease. Dementia is a symptom of carb overload, estrogen dominance and high levels of aromatse enzyme.

Eat healthy fats, avoid the poisonous carbs and be active. Salute!

100g Mieliepap = 79 grams Carbohydrates

100g sugar = 100 grams Carbohydrates

Victoriabok…..plus the heaped spoons of granular sugar or jam added

“Tax on tobacco, alcohol and cool drinks works well”.

Almost as well as the tax collection on illegal cigarettes as been evident in recent times, not so?

And judging by the unemployment figures, the tax on income has been equally effective.

“Cool drinks”

When last did i hear that word?

Brings back memories when i exchanged my empties for a few Wilson toffees and a handful of Chappies

Now one chappie costs the same as a “cool drink” and it’s half the size

While I am opposed to any coercive government intervention in the economy and the lives of people, a sugar and cigarette tax is less harmful than the redistributive municipal rates and taxes, progressive taxation and taxes of capital formation. It will have a positive effect on the economy if taxes on capital formation were replaced with taxes on consumption.

The ANC supporters who do not own property, and do not pay the taxes on capital formation or personal income tax, will at least bear some of the cost of their socialist views when they use sugar and cigarettes. Keep in mind that the tobacco tax incentivised the largest illicit tobacco industry in the world to grow in South Africa. A tax on sugar and cigarettes will only support the illicit trade in these products.

If the sugar tax does curb demand, it will put downward pressure on the local price of sugar. Treasury will get less income tax, capital gains tax and estate duties from sugar farmers and they will destroy jobs in the industry. The tax will simply change potential diabetic patients into actual malnutrinion patients. It will change a lifestyle issue into a famine issue.

But this rationale imply we should tax cANCer as well, they are unhealthy for the country

Hofman says that “the purchase of sugary drinks declined by 51% by volume.” If that was true, then surely all the shops and supermarkets would get rid of half their refrigerators which has to run 24/7/365 to keep the cooldrinks cool. Imagine what they could save if they only have to keep half of the stock which they used to.

If they are going for sin taxes, then they should be taxing each cadre. The fatter, the higher the tax

Judging by the sheer largesse of the higher leadership within the ANC, this could be most effective! Maybe the frog boiler would have to pay extra as I notice that his girth is becoming somewhat more substantial daily!

The sugar tax is insane! 2.21c per gram may not sound like a lot but equates to R0.0221 per gram or R22.10 per kg. Consider that sugar in bulk only costs approximately R5.60 per kg (USD 0.17 per pound). That means the sugar tax is nearly 4 times the price of the commodity. The cooldrink manufacturers will still sweeten their product but simply substitute sugar with another synthetic sweetener which is potentially just as harmful as sugar or worse.

The unintended consequences are that the sugar producers face reduced volumes, reduced profitability and the even the small sugar cane farmer will ultimately suffer. (Already happening.)

Yes, people die from obesity. However, we need to face facts that everyone is going to die. So, which is cheaper for the government? Treating obesity and people dying younger or letting people live longer and being a dependent on the State pension and grants for a longer period? Maybe an actuary should do a study? It will make an interesting read.

Ultimately taxing sugar is easy and the government can fake concern about our health.

You made an eloquent and insightful comment! Considering the fact that humans cause the most damage to nature and that overpopulation is an international problem, being a pragmatic naturalist, I believe that covid, aids and diabetes, as lifestyle diseases, offer more solutions than problems. I am more than willing to be the victim of my doctrine. Some principles are worth dying for because, viewed over the longer term, we are dead already.

Interesting take GavinG
Sadly your facts will be too boring, let alone complicated for ANC wigs to comprehend…..

Of course its all about the health of the paradises citizens.

Its not about funding SAA, stealing Eskom insolvent, having as many generals as the United States, stinky arms deals, PPE corruption, BMWs and Mercs for the ringleaders, BEE procurement deals, weapons for Field Marshal Niehaus and the elite troops of MK etc!

Its an effective way of boiling frogs by taxing them and stealing the proceeds!!

The higher the sugar tax, the smaller the chocolates and coke get. One day a bottle of coke will be 100ml 😉 Icecream is already sold in 1.8l containers vs the old 2l.

Except there’s no sugar tax on ice-cream, chocolate or sugar-free cool drinks. Something else is going on there. Shrinkflation.

But if we eat and drink so much less sugary things (aka if it works)… then where will this additional revenue come from? Additional revenue would mean the tax doesn’t work to keep us healthier.

said it once before: the government is really not concern about the normal citizen’s health – just look at the state of non-private hospitals – the main aim is more tax for doing nothing

in south africa as normal citizen life is bitter enough, drink my coffee with sugar – come hell or high water

Strange that Mr Ramaphosa asks for more sugar buyers to buy South African sugar.

A perfect way to damage an economy – taxes, just tax everything.
Especially cigarettes and alcohol and now sugar.

The money cigarettes, alcohol and cools drinks generate is simply mind blowing if not taxed, and this in turns creates jobs by the millions because of trickle down economics.

The solution is to make products healthier less sugars, lower tar in cigarettes responsible use of alcohol, and so on.

Allow these companies to spend more on R&D than simply taxing them.

Use regulations to compel companies to make healthier products.

End of comments.

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