The proposal for a tax on SSBs was announced in the February 2016 Budget by the Minister of Finance, driven by ambitions to reduce obesity in the country (South Africa is ranked the country with most obesity in sub-Saharan Africa). The tax is due to come into effect on April 1, 2017.
Releasing its policy paper and proposals for the taxation this month, the National Treasury said the tax aims to help reduce excessive sugar intake. Government strategies have set out targets to reduce obesity prevalence by 10% by 2020, with a sugar tax being one of the measures to achieve this.
The tax: in detail
South Africa’s sugar tax will consider SSBs as beverages that contain added caloric sweeteners such as sucrose, high-fructose corn syrup, or fruit-juice concentrates, including soft drinks, fruit drinks, sports and energy drinks, vitamin water drinks, sweetened ice tea and lemonade. Beverages that contain only intrinsic sugars (such as 100% fruit juice) will be excluded.
A tax rate of 2.29 cents (US$0.0016) per gram of sugar is suggested, which would equate roughly to a 20% tax on a Coca-Cola, to be implemented based on the current product-labeling framework.
The proposals draw on research that suggests a 20% price increase on SSB is required to have a significant impact on purchases, consumption and obesity, with a 2014 South African study suggesting that a 20% tax would reduce obesity by 3.8% in men and 2.4% in women.
The National Treasury notes the model of a flat levy per liter on all SSBs, regardless of sugar content, which it acknowledges would be simpler to administer. However, it says this would not provide an incentive for manufacturers to reformulate or for consumers to shift to lower sugar drinks.
“It is recommended that a tax on sugar-sweetened beverages based on sugar content be implemented,” says the National Treasury in its policy paper. “This approach takes the view that SSBs have high sugar content but no nutritional value and therefore every gram of sugar in SSBs should be taxed.
“Using the current available price and sugar content of soft drinks as a reference point, the estimated tax would be in the region of R2.29 per litre of SSB, or R0.0229 (2.29 cents) per gram of sugar contained in a litre of SSB.
“For SSBs that currently do not apply nutritional labeling, it is proposed that a relatively higher fixed gram of added (free) sugar is assumed, i.e. 50 grams per 330 ml or 15.152 grams per 100 ml or 151.52 grams per litre.”
“This will hopefully act as an incentive for producers to move towards voluntary labelling in instance where a mandatory (legislative) labeling system is not yet in place.”
The National Treasury points to examples of sugar taxes in other countries such as Mexico and France, as well as the UK, where a sugar tax is pending (due to be implemented in April 2018), noting that taxes are structured differently in each country.
Soft drink market in South Africa
Since 1998, the market for soft drinks in South Africa has more than doubled from 2,294m liters to 4,746m liters in 2012.
A tax on soft drinks and mineral water was implemented in South Africa until 2002, but the National Treasury says this was imposed primarily for revenue reasons, levied on volume, and was not related to health objectives.
Companies in the South African non-alcoholic beverage landscape include Coca-Cola, Tiger Brand, Pepsi, Pioneer Foods, Quality Beverages, Shoreline Beverages, Soda King Franchising, Red Bull South Africa, Mofaya, Lantes Beverages, Scheckter’s Organic Energy and Chill Beverages.
Written comments on the policy paper and proposals are invited until August 22, 2016. The policy paper can be found here.