In his budget speech in February, Finance Minister Enoch Godongwana announced the decision to increase the health promotion tax (sugar tax). This increase came four years after the introduction of the sugar tax in 2018, causing considerable damage to the sugar industry and in the absence of any evidence showing that the tax had a positive impact on the results of health or obesity levels in South Africa.
The National Treasury then took the decision to postpone the 4.5% increase for a year to carry out further consultations on the lowering of the threshold of 4g/100ml and the extension of the tax to fruit juices. . The intervening period provided another opportunity to highlight the magnitude of this ill-conceived tax on industry, with no discernible health benefit. The tax must be removed or it will jeopardize thousands of livelihoods.
While to many the tax, at 2.31 cents per gram of sugar, seems unimportant, it is far from it. This is because when you work on a ton of sugar, which usually costs around R11,500, it increases the cost by another R23,100, which means the tax is 200% of the cost of the sugar. Considered alongside the excise duties on alcohol and tobacco, the levy on sugar is disproportionate and punitive for small South African producers.
When you consider that all carbohydrates, including bread, potatoes, rice, and cornmeal, are broken down into some form of sugar, meaning that eating too much of these foods would have an impact on health similar to the consumption of too many sugary products, the disproportionate penalty on sugar becomes even more absurd. Low-income consumers often depend on a number of carbohydrate-based staple foods for energy.
This is all the more illogical as there is no research or data available demonstrating that the tax has had a positive impact on obesity in the country. Like many other countries, South Africa needs to realize that a sugar tax is useless.
For example, Denmark, which had a sugar tax since the 1930s, abolished it in 2013. Similarly, Norway has had a sugar tax since the 1920s. The country significantly increased the tax in 2018 – the same year South Africa introduced its tax – but then clawed back that increase in 2020, then cut it again by more than 48% last year. More recently, the UK government should also remove the sugar tax to combat the rising cost of living.
With a poorer population than these European countries and a declining economy, South Africa cannot justify maintaining, much less increasing, this destructive tax. Indeed, earlier this month, Uganda’s parliament recognized this fact and removed the excise duty on confectionery to boost the economy. In the interest of the livelihoods at stake, South Africa must also wake up to this reality.
A socio-economic assessment commissioned by Nedlac found that the sugar tax cost South Africa more than 16,000 jobs and R2.05 billion in 2019 alone, a year after it was implemented. Modeling commissioned by SA Canegrowers also showed that keeping the sugar tax at the current level will cost the industry an additional 15,984 seasonal and permanent jobs and will be a major contributing factor to a drop of 46,600ha in cane area. over the next 10 years.
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The fact that the government plans to raise the levy next year means there could be even more job losses than expected of 15,984 and a further reduction in cane hectares.
The tax has also had real implications for the milling crisis in the country, with millers also being hit hard by the sugar tax. This is due to sugary drink manufacturers reformulating their drinks to contain less sugar, leading to a significant drop in industry revenue. With crushing capacity and performance continuing to decline and underperform, it is critical that larger investments are secured to recapitalize their operations. However, this is becoming more and more difficult due to the financial situation of the industry.
It becomes a vicious circle where growers have no incentive to increase their sugarcane production because the mills are unable to crush what they receive. As things stand, most growers face a dire situation where between 20% and 32% of their crop may not be crushed. This situation is both undesirable and unsustainable.
If the tax increase were to be implemented next year, it would undermine the work done so far during the first phase of the sugarcane value chain master plan. Since signing the plan in November 2020, the industry has remained true to its commitments and worked diligently to ensure its success. We have seen some remarkable collaborations to support initiatives, such as SA Canegrowers’ Home Sweet Home ‘Buy Local’ campaign.
However, the sugar tax and its maintenance stand out as one of the failures of the plan. While the blueprint includes a commitment to review tax policy, there is no evidence that an effort has been made to take an evidence-based approach to tax, and SA Canegrowers’ repeated calls for a study full dietary intake went unanswered.
The result is that the sugar tax remains a threat to the ultimate success of the master plan to the detriment of producers and workers throughout the sugar cane value chain and the national economy.
It is essential that the government weighs the gains the tax brings in the form of health benefits and tax revenue against the price we have paid and will continue to pay in terms of jobs and essential livelihoods in the rural communities in the country.
The action we take – or don’t take – on the sugar tax could well determine the future of a million South Africans whose livelihoods depend on the sugar industry. DM