The sugar tax will go ahead, but Treasury has tweaked it with a lower rate than originally proposed and a steep discount for concentrated drinks like Oros.
The rate will be 2.1c per gram of sugar instead of the 2.29c originally proposed. It will get introduced “as soon as the necessary legislation is approved by Parliament and signed by the president”, according to the budget review, which Finance Minister Pravin Gordhan delivered in Parliament on Wednesday.
Assuming a two-litre bottle of Coca-Cola sells for R14.50, then the old tax proposal would have been R4.83 or 33%. Now it comes to 19.1%.
The soft drink industry, through the Beverage Association of South Africa, has launched a massive campaign against the tax, frequently buying large advertisements in newspapers and promoting research seeming to show that the tax would cost thousands of jobs and achieve no health benefit. City Press has previously reported that most of the research is seriously flawed.
According to the budget review, Treasury has completed a “preliminary” socioeconomic impact assessment of its own. It found a “relatively modest effect on job losses, most of which can be prevented if companies reformulate their products”.
The first 4g of sugar per 100ml will be tax-free. Only sugar above this level will be taxed. By way of comparison Coca-Cola has roughly 10.5g of sugar per 100ml.
Another long-awaited new tax, the carbon tax, is set to go to Parliament this year.
It will include new concessions, according to the budget review.
There will be zero pass-through of the tax in the electricity tariff, which might mean that Eskom is forced to absorb the initial cost. Eskom is by far the largest carbon emitter in the country.
The offset allowance will also get revised, seeming to indicate that Treasury will give some sectors more chances to escape the carbon tax, at least at first.
More new taxes are on the horizon with a gambling tax bill all but ready to go to Cabinet while an acid mine drainage tax originally announced in 2014 will be explained this year in a discussion document, said Treasury.
Treasury’s approach to universities this year formally reverses the department of higher education and training’s long-standing insistence that vocational colleges, not universities, are the future. According to the budget review the targets to expand the college system in the medium term are getting jettisoned completely. The enrolment target will stay the same at 710 535 up to 2019-2020 which universities are expected to grow from 1 million students to 1.1 million students.
The state subsidies for universities are set to grow in real terms. They came to R28 billion last year and will grow at 10.9% on average to reach R38 billion in 2019-2020.
Compared with universities, the network of state-owned Technical and Vocational Education and Training (TVET) Colleges are getting starved in the medium term.
While the National Student Financial Aid Scheme (NSFAS) is going to attempt to put more money into universities, it is targeting a lower number of TVET students this year. It wants to support 200 000 of them as opposed to a target of 236 000 last year.
Some of the budgeted increase in spending on universities is however premised on collecting far more outstanding NSFAS debts.
NSFAS’s allocation from the government will rise 21% from R11.4 billion last year to R13.9 billion in the 2019-2020 year. Treasury however hopes that the debts collected from students and re-used will shoot up by 200% to reach R8 billion. Most of the increased NSFAS budget is based on this elusive goal, with Treasury targeting rapid improvements in debt collection.
The social grant increases, always a controversial test for how “pro-poor” the budget is, will be mostly in line with the official headline inflation rate. Old age pensions will increase by 6.3% to R1600 a month while child support grants will rise 7% to R380.
Critics will likely point out that the inflation rate for the bottom half of the South African population is actually 7% and higher. According to StatsSA’s latest inflation numbers, prices had risen 7.9% for the poorest 20% of the population in January, compared to January 2016.
The grant budget will reach about R180 billion this year and rise to R209 billion by the 2019-2020 year ending March 2020, predicts Treasury. The increases are actually better than had been expected, something Treasury says was made possible by the number of grant recipients growing more slowly than anticipated.
The Employment Tax Incentive, which is enormously popular with organised business, will stay. However, the treasury noted in the budget review that its evaluation of the youth wage subsidy shows that it resulted in a “modest” increase in employment of the target group. At least there are no indications of the various perverse displacement effects that unions had worried about, it adds.
2017 will also mark the beginning of a new regime targeting abusive transfer pricing by multinational corporations with operations in South Africa.
As of this year multinational companies present in South Africa will have to start so-called country-by-country reporting in their financial statements and provide the South African Revenue Service with this report next year and every subsequent year.
This could finally put a lid on a tax evasion model involving parts of the same company charging each other for good and services at fake prices. The point is to add costs in one place (where the taxes are high) and shift profits to another place (where the taxes are low).
The recent settlement for R2.5 billion paid by Kumba Iron Ore related to an arrangement like this and the revenue service has also pursued Evraz Highveld Steel for similar gerrymandering of the dispersal of its costs across borders.