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Tobacco duties offer strong argument in favour of sugar tax

| Economic factors

Taxing the sugar content of beverages will reduce demand for the products and encourage producers to cut sugar content

The positive effect that taxes on alcohol and tobacco had on consumer behaviour provided a strong argument in favour of the Treasury’s proposed tax on sugar sweetened beverages, University of Cape Town (UCT) economics professor Corne van Walbeek said on Tuesday.

Van Walbeek, the principal investigator in the Economics of Tobacco Control Project, made a submission to the public hearings on the tax organised jointly by Parliament’s standing committee on finance and the health portfolio committee.

The Treasury has proposed the tax as a way of combating obesity and its associated noncommunicable diseases. Implementation is due to take effect provisionally on April 1.

A rate of tax of 2.29c/g of sugar, which equates to a 20% tax incidence on a litre of Coca-Cola has been proposed. Currently, the proposed tax is restricted to drinks that have added sugar, but the Treasury is also considering extending it to 100% fruit juice as well.

Van Walbeek noted that public health concerns were the main motivation for raising the excise tax on tobacco products in the 1990s and subsequently.

"As a result of these tax changes, more than any other tobacco control intervention, there has been a dramatic fall in smoking prevalence. In the early 1990s about a third of adults in SA smoked cigarettes; in recent years smoking prevalence was down to 20% or even lower."

Taxing the sugar content of sugar sweetened beverages would not only reduce demand for these products but would also encourage producers to reduce the sugar content.

Van Walbeek noted that the taxation of the alcohol content on beer and spirits showed how a well considered excise tax resulted in substantial changes on the supply side. Since 1998 the excise tax on beer has been levied as an amount per litre of pure alcohol. Prior to this when the excise tax was levied on the volume of beer, irrespective of the alcohol content, there was no incentive for beer producers to reduce the alcohol content.

"Since 1998 beer manufacturers have actively promoted lower alcohol beer," Van Walbeek said.

He said it was "unsurprising" that manufacturers of sugar-sweetened beverages had made alarmist claims of the job losses that would result from the introduction of the tax.

"The tobacco industry made similar alarmist claims in the late 1990s when the government was debating the Tobacco Products Control Amendment Act. Despite these scare tactics, the legislation was passed and the population has benefited greatly. The dire predictions made by the tobacco industry did not come to pass," the professor said.

Cosatu parliamentary liaison officer Matthew Parks raised the danger of job losses due to the introduction of the tax and questioned the need for it to be rushed through.

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