Members of Parliament (MPs) from across the political spectrum have told Treasury to undertake a meaningful and thorough consultation with all stakeholders regarding the issue of proposed tax on sugar sweetened beverages (SSBs).

This is a victory for the sugar industry as it had been unhappy with the so-called public participation process conducted by Treasury. MPs did not mince their words, saying this issue affected the public so there should be a proper consultation process until all role-players and stakeholders were able to find each other. A total of 37 submissions on the SSBs tax were made to Parliament.

The Standing Committee on Finance and the Portfolio Committee on Health held joint public hearings into the matter 31 January 2017. During presentations on arguments for and against the mooted tax it became clear that there had been insufficient public participation in the process. Finance Minister Pravin Gordhan first announced his intention to introduce the tax in his Budget Speech in the National Assembly in February last year. The tax is aimed at reducing high obesity levels in the country.

The public hearings were characterised by impassioned presentations from both sides of the debate. Treasury said it had identified taxing SSBs as one measure to fight obesity. It argued that globally, fiscal measures such as taxing SBBs had been recognised as effective complementary tools to help tackle Non-Communicable Diseases (NCDs) and obesity, as per the World Health Organisation. They cited examples of countries like the UK, Mauritius and France. Treasury was adamant that the mooted tax was not being used as a revenue raising stream for the State. Treasury has also downplayed the negative prospect of big job losses, should the tax be introduced, which is earmarked for implementation later this year.

Treasury Estimated that a 330ML can of Coca Cola that contained 35g would sell for R4.00 (before SSBS tax rate applied)
  Policy on SSBs released by treasury on 16 July 2016 Budget Report 22 February 2017
Tax rate 2.29c per gram of sugar 2.1c per gram of sugar above 4g/100ml
Amount of sugar taxed 2.29c x 35g = 80c 2.1c x 21.8g = 46c (13.2g exempt)
Cost of the can of Coca Cola (incl SSBs Tax rate) 4.8 (20% increased) 4.46 (11.5% increase)
Note: The revised proposed tax is therefore down from 20% of a can of coke to 11.5%. With concentrates such as cordials a 50% of the tax rate would apply.    

Delivering his Budget Speech, Finance Minister Pravin Gordhan revealed that the tax would no longer be implemented in April this year because Treasury was engaged in further consultations. “Arising from these discussions, and working closely with the Department of Health, the proposed design has been revised to include both intrinsic and added sugars. The tax will be implemented later this year once details are finalised and the legislation is passed,” said Gordhan.

On the other hand, the sugar industry bemoaned the intention to impose such a tax, saying it would have crippling effect on the industry already grappling with external factors and challenges such as drought, inadequate tariff protection and lack of alternatives. “Despite the positive footprint of the industry in KwaZulu-Natal and Mpumalanga, its sustainability is threatened by a number of external factors. The sugar industry is currently fighting for its survival in the midst of the worst drought in recorded history which has led to a decrease in production of 53% in some areas and the unprecedented closure of a number of mills,” said Rolf Lütge, Chairman of the South African Sugar Association (SASA).

He added: “Compounding the situation has been insufficient import tariff protection resulting in an influx of imports. Despite the industry being in the top 15 most efficient producers out of 120 countries, these challenges have eroded the financial viability of the industry and have pushed the sector to the edge of existence.” The sugar industry is extremely worried about the ramifications in terms of job losses. “It is inevitable that the imposition of the tax will negatively impact both the sugar milling and sugarcane agricultural sectors of the local sugar industry.”

“Loss in revenue and reduction in sugar consumption will result in a shrinkage of the industry with accompanying job losses. The potential of sugarcane agricultural land going out of production and the consequent jobs losses, will certainly not support Government’s strategic plan of prioritising agriculture for economic growth, revitalisation and job creation.” Lütge told Parliament that the industry supplied approximately 620 000 tons sugar to the beverage sectors, and based on elasticity quoted by the policy paper (-1.2), a 20% tax would result in a reduction of domestic sugar sales of 170 000 tons. Small-scale farmers stood to be the hardest hit by imposition of such tax.

The Association argued that tax was an ineffective instrument to combat obesity and NCDs. “International experience of taxes on food have found it to be unsuccessful in reducing levels of obesity. Furthermore, in a number of developed economies such as the USA, UK and Australia, research has shown that per capita consumption of sugar has been declining while obesity prevalence has been rising. Clearly, factors other than sugar consumption have a material and overriding impact on obesity trends. The singling out of an individual ingredient in a particular food product as the tax aims to do, is unlikely to resolve a complex health condition that requires a multi-disciplinary approach.” SASA is still of the firm view that a thorough South African Total Dietary Intake study must be conducted to determine the main contributors to obesity and NCDs.

Original article posted on the South African Sugar Journal