Innovate or sugar tax will increase, Treasury tells beverage industry

National Treasury has signalled a clear warning to the beverage industry: innovate or the proposed tax on sugary beverages will increase.

The proposed tax rate (2.1 cents per gram of sugar content in excess of 4 grams per 100 ml) might start relatively low, but it was to serve notice to the industry that it was very serious about the issue as part of government’s broader health policy, Ismail Momoniat, deputy director general for tax and financial sector policy, told attendees at a M&G Critical Thinking Forum at the Gordon Institute of Business Science.

Treasury insists that the planned introduction of the tax is part of a broader effort to reduce excessive sugar intake and tackle non-communicable diseases, but the proposal has been met with stern opposition from the beverage industry, spaza and tuck shop owners and some unions, in part due to fear that it will lead to thousands of job losses in an environment where unemployment is already a major problem.

In the February Budget, government proposed that the tax be implemented as soon as the necessary legislation was approved by Parliament and signed by the president. Comments on the tax rates and thresholds can still be submitted until the end of March. If introduced in its current form, the tax on a 330ml can of Coca-Cola will be 45.7 cents.

Momoniat reiterated that the tax was not meant as a money-spinner for government. It is expected to add between R1 billion and R2 billion to government coffers.

There are easier ways to raise much more significant amounts of revenue. By not adjusting personal income tax tables for inflation, Treasury could easily raise around R15 billion, he said.

Treasury’s economic modelling suggested that at a previously proposed higher tax rate, up to 5 000 jobs could be lost if the industry didn’t innovate and reformulate.

Its most recent preliminary socioeconomic impact assessment showed a relatively small effect on job losses, most of which could be prevented if companies reformulated their products, the Budget Review stated.

Momoniat took issue with previous studies suggesting that around 60 000 jobs could be in jeopardy saying they were “ridiculous figures” and questioned the assumptions used for the research.

While Treasury did not argue that no jobs would be lost, not as many jobs had to be lost if the industry innovated, he said.

Tshepo Marumule, general manager for corporate services at the Beverage Association of South Africa (BevSA), said the difficulty was that the tax would also have other unintended consequences. Job losses were not about losing one job or 5 000 jobs, but each person who lost a job also supported many other people.

He said the impact on other government departments also had to be taken into account. The Department of Trade and Industry was driving the black industrialisation programme, but while major players in the beverage industry would be able to absorb the price increase once the tax was introduced, emerging black industrialists would not be in the same position.

Actions on Treasury’s part undermined another government programme in another department, he added.

The absence of a total dietary study that could help industry to understand the average consumption of South Africans, the various sources of sugar and the contribution of the sugar beverage industry relative to others, also stood in the way of finding a comprehensive solution to the matter, he said.

Sibusiso Sepeng, CEO of the South African Spaza and Tuck Shop Association, argued that the introduction of the sugar tax would not reduce the consumption of sugary beverages.

The consumption of alcohol has risen, despite the introduction of sin taxes on alcohol, he said.

But Dr Evan Blecher of the Institute for Health Research and Policy at the University of Illinois said while alcohol tax was arguably a revenue generator before 1998, by changing the base of the tax, it has also been used to change behaviour post-1998.

Prior to 1998 all beer was taxed equally, whether the alcohol content was 2% or 5%. In 1998 the tax was changed to a “dose tax”, taxing beer based on different strengths.

Blecher argued that this created significant incentives for the industry to move the market and to shift advertising from beers with a higher alcohol content to those with a lower alcohol content.

Today, South Africans are consuming on average about 12% less alcohol from beer per adult, although they are roughly drinking the same amount of beer.

“A tax isn’t really a tax… the detail of the tax causes behavioural benefits.”

Commentators stressed however that the tax on its own would be inadequate to address health issues and that it should be part of a broader initiative to tackle non-communicable diseases.

Dr Craig Nossel, head of Vitality Wellness at Discovery, said in South Africa 55% of deaths were related to lifestyle factors.

This issue had to be addressed, not merely be introducing a tax, but also through other initiatives, like understanding how people purchased products, how products were positioned and marketed as well as the impact of sponsorships.

Dr Sundeep Ruder, clinical endocrinologist at Life Fourways Hospital, said while the tax was an important starting point to change behaviour, it had to go hand-in-hand with education.

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