SARS going after one group in South Africa

Although the sugar tax was not increased in the budget for 2025, the South African Revenue Service (SARS) is now targeting businesses involved in the manufacturing of sugary beverages.

This tax warning comes from Erasmus Theron & Herman de Jong at Shepstone & Wylie Attorneys.

South Africa’s tax shortfall continues to strain economic growth and public service delivery, prompting the South African Revenue Service to intensify its revenue collection efforts. 

Following the 2025 National Budget, SARS set a revenue target of R2 trillion for the 2025/2026 tax year, signalling a renewed urgency to close the widening fiscal gap. 

While traditional revenue streams, such as VAT, remain politically sensitive and stagnant, indirect taxes, such as excise duties, fuel levies, and carbon taxes, have been raised once again to bolster state coffers. 

Notably, however, the health promotion levy (HPL), commonly known as the sugar tax, was not increased for the third consecutive year.

This continued freeze might suggest that the sugar tax is losing its importance in fiscal and public health strategies. 

However, according to Shepstone & Wylie Attorneys, rather than becoming irrelevant, the sugary beverages industry has landed squarely in SARS’ crosshairs. 

“Despite no recent rate increase, there has been a noticeable uptick in SARS queries and audits targeting sugary beverage manufacturers,” the firm noted.

“This marks a shift from SARS’ earlier approach, where enforcement within the sugary beverage sector lagged behind industries like alcohol, tobacco, and fuel.”

The legal firm noted that the South African sugary beverages market is a $3.25 billion industry, contributing significantly to GDP, employment, and both formal and informal trade. 

Since the introduction of the HPL in April 2018 under the Customs and Excise Act, the levy has been calculated at 2.1 cents per gram of sugar exceeding 4g per 100ml, with the first 4 grams exempt.

Increase in SARS queries and audits

South Africa’s sugar levy was designed to align with WHO guidelines, which recommend a tax that raises retail prices by at least 20%. 

However, the current levy only results in about an 8% increase, suggesting there is significant potential for future adjustments.

The law firm highlighted that even without an increase in the levy rate, SARS is stepping up enforcement. 

“SARS is now conducting targeted audits, particularly focusing on manufacturers’ compliance with the HPL’s technical provisions,” Shepstone & Wylie explained. 

These audits have intensified over the past year, zeroing in on several key issues that could expose manufacturers to significant financial risk.

Among the compliance concerns, SARS is scrutinising whether manufacturers using more than 500kg of sugar in production have registered as commercial manufacturers, as required by law. 

There is also growing concern around misclassifying or outright omitting sugary beverages like carbonated fruit juices, flavoured milks, and drinking yoghurts from levy declarations.

“Failure to account for the HPL on these products can result in backdated levies, interest, and even penalties,” the firm warned.

SARS is also taking a closer look at the use of contract manufacturers operating in unlicensed facilities, a practice that may skirt HPL obligations. 

Another red flag is the continued use of outdated South African National Accreditation System (SANAS) certificates to verify sugar content, which could lead to underpayment of levies. 

Additionally, the export of sugary beverages from South Africa has become a growing area of focus in SARS’s audits, as manufacturers must follow strict documentation and licensing rules for products that leave the country.

Despite its declining contribution to the fiscus, just over R2.3 million in 2024, compared to R2.4 million in the 2019/2020 tax year, the HPL remains a critical tool in the government’s public health arsenal. 

The downward trend in collections has raised questions, with Shepstone & Wylie suggesting that it may be linked to sugar reformulation strategies or strong lobbying from the sugar industry. This decline could also indicate a history of lax enforcement.

As SARS ramps up audits and enforcement actions within the sugary beverage sector, the firm has urged relevant businesses to prepare for greater scrutiny.