A LEVY on the sugar content of beverages was introduced through the 2024 National Budget as a response to the growing concerns about the adverse effects of the consumption of sugar contained in beverages. The consumption of high sugar content beverages is linked to increased risk of non-communicable diseases such as diabetes, and high blood pressure. South Africa is one of the countries where a tax on beverages has been implemented.
To discourage consumption of high sugar content beverages, a levy of US$0.02 per gram of sugar contained in beverages was introduced, excluding water, with effect from 1 January 2024. However, on 8 January 2024, the Ministry of Finance and Economic Development issued a press statement reviewing the special surtax on sugar content on specified beverages to US$0.001 /gram. The press statement also alluded that given the possibility of substituting sugar with sweeteners, these will be deemed as sugar for tax purposes. It was also made clear that the special surtax will apply on added sugar only.
Effects of surtax on public health
The tax would make sugary drinks more expensive, potentially discouraging people from buying them and leading to a decrease in overall sugar intake. This could have a positive impact on public health by reducing the risk of non-communicable diseases linked to excessive sugar consumption, such as obesity, type 2 diabetes, heart disease, and some cancers.
In addition, price increases might encourage consumers to switch to healthier alternatives like water, unsweetened tea or coffee, or low-sugar beverages. This could contribute to an overall improvement in dietary patterns and promote healthier lifestyles.
By lowering the prevalence of noncommunicable diseases associated with sugary drinks, the tax could potentially lead to a reduction in healthcare costs associated with treating these conditions.
Shift towards cheaper, potentially less healthy alternatives: Consumers might switch to cheaper alternatives with low sugar content but high in artificial sweeteners or other unhealthy ingredients. This could negate the intended health benefits of the tax.
Effects of surtax on the economy
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Increased government revenue: The tax would generate new revenue for the government, which could be used to fund various public programs or initiatives, such as healthcare education, obesity prevention programs, or investments in infrastructure. As indicated in the 2024 National Budget Statement, funds derived from this levy will be ring-fenced for therapy and procurement of cancer equipment for diagnosis. The targeted allocation reflects an effort to address healthcare infrastructure challenges, particularly in the context of cancer care.
Disproportionate impact on low-income individuals: Sugar-sweetened beverages are often cheaper than alternatives, making them a more affordable option for low-income families. The tax could disproportionately burden these individuals, increasing their food costs and potentially limiting their access to healthy choices.
Impact on the beverage industry: The tax could lead to job losses in the beverage industry, particularly for companies that produce sugary drinks. However, it could also create new opportunities for manufacturers of healthier beverage alternatives.
Impact on retailers: Retailers that sell sugary drinks might see a decrease in sales if consumers switch to cheaper alternatives or reduce their overall consumption. However, they could also benefit from increased sales of healthier beverages.
Higher beverage prices: The levy would inevitably increase the prices of sugary drinks, potentially impacting lower-income households who disproportionately rely on such beverages. This could lead to reduced affordability and hardship for vulnerable populations. Because of the incidence of tax, the burden of surtax is shifted to consumers of beverages.
Informal market: The effectiveness of the levy could be hampered by informal markets where sugary drinks might be sold without paying the tax. Additionally, consumers might opt for purchasing cheaper sugary drinks from neighboring countries where such a levy is not in place.
Impact on consumer behaviour
Changes in purchasing habits: Consumers might start buying smaller sizes of sugary drinks or switch to brands with lower sugar content to avoid the tax. They might also look for cheaper alternatives or purchase beverages less frequently.
Public perception: The tax could be seen as a positive step towards promoting public health by some consumers, while others might view it as an unfair burden or an infringement on their personal choices.
Potential for smuggling and cross-border shopping: Depending on the price difference and enforcement measures, there is a possibility of increased smuggling or cross-border shopping for sugary drinks to avoid the tax.
Recommendations
Minimum exemption threshold: The government may consider having the first four grams per 100 ml exempt from the levy. This avoids penalizing low-sugar or diet options, allowing them to remain competitively priced and encourage healthier choices. By excluding beverages below the threshold, the policy mitigates potential affordability concerns for low-income households who might rely on such beverages more.
This helps balance the public health goals with social considerations. In addition, a minimum threshold allows for a more gradual and targeted approach to reducing sugar consumption. Lower levels could be set initially, followed by potential increases over time as the market adjusts and public acceptance grows. This creates a less disruptive impact on the beverage industry and consumers.
Clarification on powder and liquid concentrates: The Ministry of Finance and Economic Development should clarify how surtax is calculated for powder and liquid concentrates.
Disclosure of revenue raised from surtax: To ensure transparency and accountability the Ministry of Finance and Economic Development should consider disclosing to the public the total amount raised from this health promotion levy on sugar-sweetened drinks in each fiscal year. Openly reporting surtax revenue allows citizens to understand how much money the tax generated and for what purpose it was intended. This fosters trust and engagement in the government's financial decisions.
Differentiated surtax on sugar-sweetened beverages: The Ministry of Finance and Economic Development should consider having a lower levy for domestically produced beverages compared to imported beverages. Preferably, maintain the levy at US$0.02/gram for imported beverages and US$0.01/gram for domestically produced beverages. A lower surtax can make domestic beverages more competitive, potentially boosting sales and profits for local producers.
This can lead to increased employment, investment, and economic growth in related sectors like agriculture, manufacturing, and distribution. Domestic beverage producers, especially small and medium-sized enterprises, might face difficulties competing with cheaper imported brands if both are subject to the same surtax. A lower surtax can help level the playing field and protect jobs in the domestic industry.
- Zvendiya is an independent policy analyst. These weekly New Perspectives articles, published in the Zimbabwe Independent, are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Pvt) Ltd, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). — kadenge.zes@gmail.com or mobile: +263 772 382 852
