The unexpected casualty of South Africa’s lockdown and alcohol bans

Finance minister Tito Mboweni says that the South African Revenue Service (SARS) has collected nearly R8 billion through the Health Promotion Levy (HPL) since it was introduced on 1 April 2018 – but the tax took an unexpected knock this year due to the lockdown and associated alcohol bans.

Commonly known as the ‘sugar tax’, the levy currently adds about 11% to the cost of sugary beverages to help curb the country’s sugar consumption.

Currently, beverages are taxed about 2.21 cents per gram of sugar for anything over a 4-gram threshold. The levy adds about 46 cents to the price of an average can of original taste Coca-Cola, for instance.

The levy does not apply to natural fruit juices or sweetened dairy products, however.

While the levy has continued to raise funds in line with estimates, local collections declined in the 2020/2021 financial year, Mboweni said in a written parliamentary reply this week.

Levy collections from locally manufactured sugary drinks, which are the vast majority, contracted year-on-year by 16.4% when compared to the 2019/20 financial year.

“During the early stages of the hard lockdown levels, most manufacturers of sugary drinks were not classified as essential services and thus production was affected.

“Furthermore, it appears that the impact of the restricted sales on alcoholic products during the Covid- lockdown is one of the drivers behind the lower manufacturing of sugary drinks as demand has also fallen.”

Mboweni said that the Covid-19 had an insignificant impact on levy collections from imports.

Levy continues to be a success

Despite this knock, data provided by Mnoweni shows that the levy has continued to raise a significant amount of money for the government.

“The cumulative revenue collected from the on domestically produced and imported products, from inception on 01 April 2018 to 31 March 2021, is R7.9 billion,” Mboweni said.

“Collections in 2018/19, 2019/20 and 2020/21 were R3.2 billion, R2.5 billion and R2.1 billion respectively.”

Mboweni said that tax revenues from the levy are not earmarked or ringfenced for any particular expenditures, but instead flow into the National Revenue Fund.

However, additional funding for health promotion and chronic disease prevention was allocated in the National Department of Health budget, he said.

This allocation is approximately R50 million per annum over the 2021 medium-term expenditure framework.

Is it working? 

Mboweni said that two research studies have been shared with Treasury, showing that the levy is effective.

“The first detailed the impact of the health promotion levy on the prices of beverages and did not find any evidence of price increases for beverages that were exempt from the health promotion levy, whiles those beverages that were taxed increased in price by around R1 per litre on average,” said Mboweni.

“The second study examined the impact of the health promotion levy on the consumption levels of sugary beverages.

“The study finds that there was a decrease in the consumption of taxable beverages, with a smaller increase in the consumption of non-taxed beverages, and that the impact was greater for lower-income households.”

Despite this success, Mboweni said that there are no immediate plans to increase the levy.

“The rate for the HPL was not changed for the 2021/22 fiscal year and no announcement has been made for the 2022/23 fiscal year. Rate and levy changes are normally only made as part of the annual Budget announcements.”

Read: SARS warns South Africa’s tax base is under severe strain

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The unexpected casualty of South Africa’s lockdown and alcohol bans