Johannesburg - The proposed tax on sugar sweetened beverages (SSBs) has the potential to reduce the industry’s contribution to South Africa’s gross domestic product (GDP) by R14bn, the Beverages Association of South Africa (BevSA) warned on Tuesday.
It said this is the equivalent of 0.4 percentage points of GDP growth in 2016.
BevSA announced its formal response to National Treasury’s policy paper on a sugar tax at a formal briefing, in Sandton. Speaking at the briefing, Mapula Ncanywa, executive director explained that companies currently contribute R7.6bn as tax revenue.
In its view, the proposed SSB tax could trigger 62 000 to 72 000 job losses, hurt the SA economy, exacerbate the broader fiscal and societal costs associated with unemployment, increase the burden on consumers with 25% price increases and damage the competitiveness of the non-alcoholic beverage industry. Additionally, 10000 small businesses may close, said Ncanywa. "For every spaza shop opened, an additional 1% is employed."
The resulting job loss will also reduce government's tax revenue collection pool, explained Ncanywa. This would be a loss of R1.3bn. Combined with a corporate tax loss of R1.1bn and a loss of R0.8bn for VAT, the real tax collection loss comes to R4.5bn, or a drop of 41%. The net impact on the fiscus comes to R3.8bn. This is why BevSA believes the tax is unlikely to raise the revenues expected by the National Treasury.
BevSA also estimates that the tax would, through its impact on unemployment, result in increased UIF payments of approximately R0.7bn.
"The tax will force many smaller producers to exit the market, thereby reducing industry competition," said the association. "The tax is anti-competitive,"added Ncanywa.
"As the proposed tax is levied per gram of sugar, smaller players who compete with lower prices and larger pack sizes will be most severely impacted. The SSB tax would represent a higher mark-up on their relative prices. Price increases could be as high as 80% on some 2 litre packages."
Ncanywa explained that in South Africa 2.29c per gram of sugar would be taxed. For a two litre coke bottle, the tax will push the retailer margin up to 26%, excluding VAT. Introducing VAT will push the margin further to 33%. If the tax is imposed, the price of a two litre bottle of coke could rise to R24.50.
Similarly, the price of a bottle of Twizza could escalate from R9.20 to R16.60. And the price of a bottle of Refreshhhcould rise from R11 to R18.20, if the tax is introduced.
Weighted average consumer prices will rise by 25% as a result of the tax. Consequently sales will decline by 33%, which translates to a R12.8bn revenue loss.
Average daily energy consumption in South Africa has increased by 191 daily calories per capita (799 kilojoules (kJ) per capita) from 1991 to 2011. As a result, adult obesity rates have grown from 22% to 27.7% over this period. However, during this same time, consumption of added sugars has declined in both absolute terms (by 46 calories or 192 kJ per capita per day), and relative terms (from 12% to 10% of total calories).
The association said the largest contributors to the rise in energy intake are calorie rich foods such as vegetable oils - up 105 calories or 440 kJ per day. The 2014 McKinsey Global Institute report on obesity cites sugar reduction reformulation and providing smaller portion size as the two most effective interventions in the UK, whereas sugar taxes are not among the top ten.
In addition, there is no conclusive evidence from other markets that imposing a tax on soft drinks helps people to lose weight. It only reduces calorie consumption by 9Kcal, that is a 0.3% reduction in daily consumption, explained Ncanywa.
"Energy consumed comes from all foods. Soft drinks only account for 3% of calories attributed to sugar," said Ncanywa. "Where does the other 97% come from? Why aren't those products taxed? That is a question for Treasury to answer," she added.
"We are committed to working with Government to tackle the obesity problem in South Africa. We have specific plans underway to reformulate beverages, offer smaller pack sizes, expand consumer access to low- and no-calorie beverages, and invest in health education and awareness programmes - measures that we know to be effective in addressing obesity based on rigorous independent research," said the association.
BevSA members committed to additional reformulation that will reduce average daily energy intake by at least 14 to 18 calories (59-75 kJ) per capita by 2020. This is double the estimated 7 to 9 calorie (36 kJ) impact Treasury hopes to achieve through a sugar tax.
"These industry commitments, through BevSA, have been endorsed by the director general of the Department of Health," the association said.
"The punitive SSB tax would create significant uncertainty for the industry, and foster a climate in which investments may be unviable. This will prevent or reverse further growth and innovation. We are committed to working with Government to find workable solutions which address obesity while protecting jobs and our economy, particularly at this critical juncture for the country’s future."
Ncanywa added that the sugar tax is not on sugar sweetened beverage producers, but rather on consumers. "Why are we penalising people for their choices?" she asked. The tax will hit the poorest the hardest, as these consumers are more inclined to buy the products. Referencing Mexico, 64% of tax collected in the country came from lower socio-economic status households and 38% of tax was paid by people below the poverty line.
The 20% sugar tax is one of the highest proposed in the developing market. Developed markets, such as Finland and Denmark, which introduced the tax are planning to repeal it because of the negative consequences. "We should learn from their mistakes," she said.
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