Sugar now to be included with the sin taxes

AMONG the many sins that the government already taxes, taxpayers can now include sugar along with alcohol and tobacco. In his February Budget speech, the Minister of Finance, Pravin Gordhan, announced a proposal to introduce a tax on sugar-sweetened beverages with effect from April 1 next year to help reduce excessive sugar intake.

On July 8, the National Treasury published for public comment a policy paper and proposals on the taxation of sugar-sweetened beverages. This summarises the rationale behind the tax, its scope, the proposed method of taxation and administration of the tax.

The proposal comes against the backdrop of a growing concern regarding obesity stemming from over-consumption of sugar. The tax has therefore been proposed to help tackle the problem of obesity in South Africa by influencing consumer behaviour at the point of purchase, by changing the relative price of healthy products as compared to less healthy products.

The tax will be levied on sugarsweetened beverages which are defined in the policy paper as those that contain added caloric sweeteners such as sucrose, highfructose, corn syrup or fruit-juice concentrates.

They include but are not limited to: soft drinks, fruit drinks and sports and energy drinks.

The policy paper has recommended that the beverages will be taxed based on their sugar content as stated on the nutritional label. Using the current available price of soft drinks as a reference point, the estimated tax would be R0.0229 (2.29 cents) per gram of sugar. This approach takes the view that sugar-sweetened beverages have no nutritional value and therefore every gram of sugar in them should be taxed.

For sugar-sweetened beverages that currently do not apply nutritional labelling, it is proposed that a relatively higher fixed gram of added sugar will be assumed, that is 15.152g per 100ml or 151.52g per litre. The intention here appears to be to incentivise producers to move towards voluntary nutritional labelling until a mandatory labelling legislative framework is put in place.

It is proposed that the tax will be administered as an excise duty and collected at source. It will apply to local and imported products.

Although the purpose of the tax is to change consumer behaviour, the full impact on health benefits and reduced sugar intake can only be evaluated once the tax is in place.

Ngcongo is a tax consultant at KPMG. He can be reached at 031 327 6000 or philani.ngcongo@kpmg.co.za.