Proposals have been made to double the health promotion levy that imposes taxes to sugary beverages as a means of raising revenue to fund Covid-19 relief.
Proposals have been made to double the health promotion levy that imposes taxes to sugary beverages as a means of raising revenue to fund Covid-19 relief.

Tax hikes discussions for sin and sugar levies.

By Tshego Lepule Time of article published Feb 21, 2021

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AS Finance Minister Tito Mboweni is expected to deliver the budget speech this week health groups are lobbying for the doubling of sugar tax while the alcohol and cigarettes sector seeks reasonable hikes.

With an ailing economy caused largely by effects of the Covid-19 pandemic and a need to raise money to fund the vaccination programme, raising taxes has been punted as the government's likely plan.

And the Healthy Living Alliance (HEALA) group believes doubling the country’s health promotion levy on sugar beverages may assist the government's plans.

Proposals have been made to double the health promotion levy that imposes taxes to sugary beverages as a means of raising revenue to fund Covid-19 relief.

“This is a watershed moment for the country, government revenues are under immense pressure and funding the fight against Covid-19, including vaccines, remains critical,” said the organisation’s Lawrence Mbatali.

"Policymakers, and in particular the National Treasury, have an opportunity now to decide to increase the health promotion levy to 20% to raise additional revenue in the short term.

“In the long term, we know that a health promotion levy of 20% will reduce the amount of sugar people eat, decreasing their chance of developing conditions such as diabetes, obesity and high blood pressure that also put people at a higher risk of dying from Covid-19.”

Currently sugary beverages are taxed about 2.21 cents per gram of sugar for anything more than the 4-gram threshold, which means about 46 cents is added to the price of an average can of cooldrink. Sweetened juices are however exempt from this levy, a fact the alliance also wants changed. Since its inception in 2018 the levy was said to have raised as much as R5.4 billion.

Speaking during a briefing hosted by HEALA, Professor Corne van Walbeek from UCT’s Research Union on the Economics of Excisable Products said the government would be targeting excise taxes which made up 3.5% of the total revenue.

Van Walbeek said less taxes were collected from excise taxes as a result of lockdown restrictions last year.

“The ban on cigarettes and three different alcohol bans contributed to this and without income some people didn’t spend as much on sugary beverages even though there was never a ban on them because they are largely regarded as luxuries,” he said.

Proposals have been made to double the health promotion levy that imposes taxes to sugary beverages as a means of raising revenue to fund Covid-19 relief.

Economist Dawie Roodt said while hikes to sin taxes or indirect levies would be felt more by the specific sectors, they do not contribute enough to the fiscus to warrant significant hikes.

“Of those indirect taxes like cigarettes and alcohol the most significant one remains the increase to the fuel levy,” he said.

“However, if he were to increase these so-called sin taxes it will be felt more by those specific sectors and an increase for tobacco and alcohol usually sees those businesses going underground and even less taxes being collected, it is a dilemma. But he will argue that given the current economic state we cannot increase income or value added tax – which are one of the bigger contributors to revenue.

“The sugar tax, while significant to cooldrink manufacturers, also does not contribute all that much to total revenue. But we are at the end of the line, some tough decisions have to be made by the minister this week.”

Founder of Tax Justice SA, Yusuf Abramjee, has warned that any increases to sin taxes in this week’s budget would only serve to enrich the illicit trade and decrease collectable revenue.

Cape Town-100215-Smoking pic for sin tax-Michelle Petersen and Nduduzo Ncube-Photographer-Tracey Adams

“While honest citizens have suffered immeasurably during the pandemic, criminals in the illicit economy have been getting rich. Whatever their purpose, the bans on the sale of cigarettes and alcohol boosted the fortunes of operators in the black market, while sacrificing more than R20 billion in unpaid excise taxes,” he said.

“To try to recoup those lost ‘sin’ taxes with a hike in rates now, would be a kick in the teeth for consumers. Illicit networks have become firmly entrenched and they will simply become more attractive to hard-up South Africans if Minister Mboweni forces up prices on the legal market.”

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