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Tax is sweet news for boosting revenue

| Economic factors

SA’s new sugar tax could add 20% to the price of a Coca-Cola, but would exempt Liquifruit and other 100% fruit juices, along with unsweetened milk and bottled water.

The Treasury has released a policy paper on the taxation of sugar-sweetened beverages, which Finance Minister Pravin Gordhan announced in his February budget.

The tax, to be introduced on April 1 2017, has been proposed as a health measure, to reduce excessive sugar intake and cut high levels of obesity and diabetes.

"Taxes on foods high in sugar are potentially a cost-effective strategy to address diet-related diseases," the Treasury said.

However, the new tax will also help to boost revenue at a time when the fiscus is under pressure, with industry sources estimating that the new tax could raise as much as R3.6bn a year.

The tax will be levied on the added sugar content at a rate of 2.29c per gram of sugar. This is roughly a 20% tax incidence for a can of a popular fizzy drink, such as Coca-Cola, which contains an average of about 35g of sugar — making the tax rate one of the highest in the world.

In Mexico, which has a similar tax, the incidence is about 10%.

It will apply to sweetened beverages, such as soft drinks, fruit drinks, vitamin and sports drinks, iced teas and drinking yoghurt but will exclude beverages that contain only "natural" or "intrinsic" sugars.

The move is expected to be positive for SA’s R6bn fruit juice industry, as well as for fruit farmers and processors.

Pioneer Foods, which makes brands including Liquifruit and Ceres, said it was pleased that 100% fruit juices were excluded and that the fruit agricultural value chain would not be adversely affected.

"This is particularly relevant to a struggling agricultural sector," said Pioneer managing executive Gareth Haarhoff.

Several countries have implemented taxes on sugar-sweetened beverages in response to growing health concerns in recent years. Although they tend to reduce consumption, the evidence on their health benefits has been mixed.

Deloitte tax partner Nazrien Kader said it was too early to determine the effect on the industry or on consumers. More detailed studies and consultations with the industry should take place to determine the quantum of the levy, and if such a tax would have the outcomes expected.

"That is, improve the health of the nation as opposed to another source of income for the Treasury," she said.

"What SA does not need is another ‘stealth tax’, such as the plastic bag levy, which is ineffective and has had no visible impact on changing behaviour."

The deadline for public comments on the policy paper is August 22.

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