In its policy paper on a proposed tax on sugar-sweetened beverages (SSBs), the Treasury outlines how taxing soft drinks is the cheapest way the government can tackle diet, physical activity and obesity. It does not, however, consider the effectiveness of such a tax or take into account the many hidden economic costs in introducing it.
Treasury says trying to reduce obesity through a tax on SSBs is according to its calculations the cheapest option at 20c per head, while using food-advertising regulations would cost 90c/person; food labelling R2.50/person; worksite interventions R2.50/person; mass media campaigns R7.50/person; school-based interventions R11.10/person, and physician counselling R11.80/person.
In other words, it is much easier to tax cans of soda than actually address obesity as a lifestyle disease - even though the effects of such a tax on consumers’ purchasing behaviour in South Africa remain at best uncertain. What the Treasury seems not to have considered in its calculations is the potential negative impact of the proposed tax on the beverage industry and the national economy.
The R80 billion industry supports 200 000 livelihoods, many of these in poorer provinces, such as the Eastern Cape. If the tax goes ahead, up to 70 000 jobs could be lost, according to an independent study by Oxford Economics commissioned by the Beverages Association of SA (Bevsa).
Provinces such as the Eastern Cape will be disproportionately affected in terms of the number of jobs lost, where the bottling industry supports the livelihoods of thousands of workers, spaza shop owners and their families.
With volumes reduced by potentially a third, the knock-on effects across the supply chain will be felt from the Limpopo to Cape Town. The proposed tax has also put brakes on future investment in the sector.
Treasury acknowledges that some of the challenges that have faced the imposition of a tax on sugar products include administrative considerations; job losses; product substitution by consumers; and tax evasion because of classification anomalies.
Taxing unhealthy lifestyle choices for some products may have worked in the past, but taxing sugar is far more complex.
Sugar is present in so many foods and drinks today - in its naturally occurring nutrient, for example in fruit, as well as in its refined form, but pushing for a tax that distinguishes between the two can be artificial since many products are a combination of the two.
Value judgement
In its current form, the policy paper proposes only taxing products to which sugar has been added - including SSBs, but excluding 100 percent fruit juices for example and some dairy products.
The fact that 100 percent fruit juices are exempt from the tax, even though they contain similar levels of sugar and kilojoules to soft drinks per litre, also indicates that there is a strong element of value judgment, rather than evidence-based research, in how Treasury intends implementing this tax.
Tax already accounts for 25 percent of the purchase price of soft drinks in South Africa. Treasury is proposing another 20 percent - although in reality, the effect will be much higher.
According to research by the Standard Bank, the proposed tax will increase private label soft drinks from about R9.99 to R15.94 (+50 percent), smaller brands from R12.99/2litre to R18.03 (+40 percent), while global brands will increase from R15.99 to R20.84 (+30 percent). This means the smaller players may simply be priced out of the market.
What’s more, a study by KPMG shows that the price differential between SSBs and alternatives such as milk, remains high after the tax is implemented - so consumers will still have limited choice to switch to alternatives while staying within their budgets. The only low kilojoule alternative which would be more comparatively affordable would be bottled water. But whether consumers would consider water a suitable substitute remains uncertain.
Because the tax is in the form of an excise duty - paid by manufacturers at the beginning of the production process - soft drink producers are likely to treat it simply as another overhead - and apply it across their entire range of products.
In Mexico, this is what happened after a tax on SSBs was introduced in 2014, with the result that all drinks became more expensive. Not only would this contribute to general food category inflation, but would mean that from a consumer’s perspective, price increases will be uniform across different beverages, so they have little incentive to choose lower sugar options.
It also admits that Finland experienced tax evasion challenges due to problems in classifying the tax base. Denmark experienced cross-border trade distortions which were part of the reason for the abolition of the tax on sugar-sweetened and artificially-sweetened beverages in 2014 and the paper also highlights this as a potential problem in Ireland.
The government seeks to use price as the major tool in seeking to govern behaviour, but a blunt rise in cost does not mean consumers will be any more educated about their diet.
Promoting healthier food ranges, regulating clearer food labelling and educating consumers about the hidden sugars across all food and drink would involve time and require industry, government and civil society to agree and work together. This would have a far greater effect on the nation’s health than singling out one product to tax.
* Tshidi Ramogase is the public affairs and communications director at Coca-Cola Beverages South Africa.
* The views expressed here do not necessarily reflect those of Independent Media.
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