Two reasons why South Africa’s sugar tax will fail

The government plans to impose a ‘sugar tax’ to curb lifestyle diseases in South Africa, however it may not have the intended effect, warns senior manager of excise at Deloitte South Africa, Pieter Marais.

This is primarily due to two key reasons:

  • Firstly, similar taxes implemented elsewhere in the world have shown little impact on its intended goals (for health and consumption); and
  • Secondly, the current draft tax laws give little to no incentive for companies to actually comply.

Public hearings on the proposed sugar tax on soft drinks, energy drinks and sweetened milk are taking place in Parliament on Tuesday.

The government is contemplating a proposed 20% tax on sweetened beverages.

According to Marias, research in the UK and US found that reduced beverage consumption has little effect on sugar consumption in general.

“And, even more noteworthy, reduced sugar consumption alone has negligible effect on the prevalence of lifestyle diseases,” he said.

In effect, analysts are concerned that South Africans will just pay more for their sugary treats rather than cut them out together.

There is also serious concern that the money raised will be added directly to the fiscus instead of being directed towards education programs about the danger of sugar and lifestyle diseases.

“Based on reported figures, it is expected that, at the initial proposed levy-rate and at current sugar-sweetened beverage consumption levels, at least R4 billion in public revenue will be received by SARS per annum through this levy,” Marais said.

“From a public interest perspective, the public revenue it generates should be applied exclusively for specific sugar-consumption-curbing and lifestyle disease awareness initiatives.”

Beverage companies have also noted that the tax is unlikely to actually curb South Africans’ consumption, but will severely hamper the industry in country, resulting in possible job losses.

Beverage SA’s Mapule Ncanywa told Parliament that about 25% of industry jobs are at risk. “Significant indirect job losses will be in the informal sector. We don’t want to be a contributor to unemployment in this country. It’s going to make it difficult for us to create new jobs.”

“As an industry we feel we punch way above our weight. We make a significant contribution to the country’s GDP.

“We’re not just trading for the sake of trading. We support up to 300 000 jobs and contribute R17.5bn towards taxes,” Ncanywa said.

There are currently no true incentives to encourage these companies, said Severus Smuts, director of indirect tax at Deloitte.

“The new tax should offer an exemption from all traditional customs and excise compliance requirements including exemption from licensing and, of course, from paying this levy,” Smuts said.

“As for the proposed implementation date of 1 April 2017, various pre-implementation activities still have to be finalised (including the publication of governing rules) before SARS will be able to consider actual licensing applications from importers and local manufacturers. This process can take several months to finalise,” he said.

Read: South Africans who get tipped at work may be in for a nasty tax shock next month

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Two reasons why South Africa’s sugar tax will fail