Parliament’s Standing Committee on Finance last week adopted the Health Promotion Levy (HPL), also known as the sugar tax.
The levy stems from the National Department of Health’s Non-Communicable Diseases (NCDs) Strategy, which identifies sugar, salt, alcohol and tobacco as risk factors that cause NCDs.
The strategy recommends various actions to reduce the burden of disease caused by NCDs. (NCDs are health conditions or diseases which are “non-infectious” and likely to be caused by the risk factors.)
The sugar tax is set against the global backdrop of the increasing incidence of obesity stemming from the overconsumption of sugar.
Obesity is a global epidemic and a major risk factor linked to the growing burden of NCDs. The NCDs Strategy identified taxes on foods high in sugar as a very cost-effective strategy to address diet-related disease.
The sugar tax was first mentioned in the minister of finance’s policy announcement (his Budget speech) in February 2016, and the National Treasury published the Policy Paper on Taxation of Sugar-Sweetened Beverages that July, inviting comments from the public.
The sugar tax was then set to be implemented last April at a rate of 20% on the sugar in the beverage.
The Rates and Monetary Amounts and Amendment Revenue Bill was tabled in Parliament earlier this year and referred to the Standing Committee on Finance.
The committee held extensive public hearings and raised concerns about the negative impact on the economy, employment and emerging farmers.
This is a particularly sensitive issue given that the National Development Plan aims to eliminate poverty and inequality by 2030. Growing the economy and creating employment plays a crucial role in the policy achieving its objectives.
At the same time, the health department needs to prolong life, ensure that we live healthy lives and reduce the cost NCDs impose on the state. The committee had to mediate between the competing interests of health versus trade - a good example of “meaningful” consultation with the public.
A parallel consultation and engagement process was held at the National Economic Development and Labour Council (Nedlac). This was the first occasion that the stakeholders engaged on a tax bill at Nedlac.
The process was largely driven by Cosatu, as it was particularly concerned about the loss of jobs and the lack of a plan to mitigate this.
Business opposed the sugar tax and is of the view that under the sugar tax, job losses are likely to be between 17 000 and 24 000.
It pointed out that the McKinsey Institute rating of a tax as an intervention is rated as ineffective or a low intervention. Business proposed a more phased-in approach towards sugar reduction in sugar-sweetened beverages.
The Treasury pointed out that the number of jobs likely to be lost is between 2000 and 3000. It also pointed out that the tax was already reduced from 20% to 10% and that the health lobby opposed any further concessions.
The tax is intended to be punitive, and if deferred or phased-in or diluted any further, it would not have any impact.
Labour supported the NCDs Strategy, but wanted a phased-in approach to the tax that would give the sugar industry sufficient time to adjust and prepare.
In terms of the agreement reached at Nedlac, the government has to put in place a jobs mitigation and creation plan for the sugar value chain.
This will ensure that there is continuous review of the process and engagement to review the impact of the sugar levy.
The sugar levy is set to be implemented on April 1, 2018.
The first 4g of sugar in a beverage is tax free.
Milk and 100% fruit juices are exempt from the sugar tax as they contain natural sugars.
Yunus Carrim MP, chairman of the Standing Committee on Finance, said that “Stakeholders were very polarised at the public hearings, but through extensive negotiations within the committee and Nedlac, the differences have been reduced. We had to introduce the HPL, taking into account possible job losses and the needs of emerging farmers and others.
“Compromises were inevitable if we are to go forward. None of the key stakeholders is entirely happy with the bill, but there’s certainly progress.
“The ultimate test is what happens in practice. We will have to actively monitor this and review the bill as necessary.”
The NCDs Strategy also identified alcohol and tobacco as risk factors. The Liquor Amendment Bill was published earlier this year. The bill aims to restrict advertising of alcohol products.
The Nedlac process on the bill has concluded and the Department of Trade and Industry is preparing the bill for the cabinet, after which it will be referred to Parliament.
The Tobacco Products Control Act is in the process of being rigorously amended to include the plain packaging of tobacco products; e-cigarettes; and banning the display of tobacco and smoking in public places.
The plain-packaging measure was implemented in Australia in 2012 and there are studies both for and against it.
Given that South Africa is hosting the World Conference on Tobacco or Health next year, it is likely that the tobacco bill may find its way to Parliament sooner rather than later.
A study conducted by Econex shows that tobacco farms employ between 8000 and 10000 farm workers in deep rural areas, support a further 108475 jobs, spent more than R2.7 billion on BBBEE supplier procurement and paid R17 billion in revenue to the government in 2014.
Illicit trade in cigarettes stands at 23% of the market.
An issue that requires robust and constructive debate is whether standardised cigarette packs will exacerbate an already high illicit trade.
According to the latest Quarterly Labour Force Survey from Stats SA, South Africa shed 113 000 jobs between the first and second quarters of this year. A major concern is shedding jobs in deep rural areas, as this will affect the already poor farm workers.
A company such as Coca-Cola might easily move from sugar-sweetened beverages to non-sugar-sweetened beverages, however a sugar farmer can only farm sugar.
The same goes for a tobacco and barley farmer.
Farmers will need to identify new markets and build a presence to become successful in these. To move into a different market requires time, resources and expertise.
These are the competing interests of health versus trade that Parliament will need to weigh in finalising bills.
My view is that South Africa is unique and we should adopt measures that are suitable for our country.
** The views expressed here are not necessarily those of Independent Media.