South African Sugar Tax Would Be a Bitter Blow For GDP and Economy

23 Aug 2016 --- South Africa’s proposed sugar tax will cut the country’s GDP by one billion US dollars, according to the Beverage Association which is lobbying against the levy.

BEVSA is warning the “discriminatory” tax on sugar sweetened beverages (SSBs) could reduce South Africa’s Gross Domestic Product by the equivalent of 0.4 percentage points of GDP growth in 2016.

The stark warning follows BEVSA’s claims that the proposed sugar tax will lead to 62,000 to 72,000 job losses, hurt the South African economy, exacerbate the broader fiscal and societal costs associated with unemployment, whilst increasing the burden on consumers with 25 percent price hikes as well as damaging the competitiveness of the non-alcoholic beverage industry.

The industry body also claims the tax goes against the national government plans to encourage economic growth, eliminate poverty and increase employment.

Some officials do not believe any kind of sugar tax will lead to the estimated increases in revenue. Government revenues from its existing taxes could fall by at least US$2.3 million, representing more than 40 percent of the revenue the government hopes to raise through the SSB tax.

The tax will have such an impact on unemployment the results will be that unemployment benefits payments will go up by approximately US$52 million, according to BEVSA estimates. It will also force many small producers out of the market and reduce industry competition.

The plan is to levy tax per gram of sugar which means that smaller players who compete with lower prices and larger pack sizes will be badly affected as the SSB tax represents a higher markup on their relative prices. BEVSA estimates price increase could be as high as 80 percent on some two liter packages.

Like several other countries, South Africa is considering introducing the SSB tax in a bid to curb obesity and associated health problems with particular focus on reducing sugar consumption in children.

However BEVSA believes introducing a levy on sugar and penalizing the soft drinks industry is not the best way to tackle obesity.

“All this would be done with very little impact on the country’s overall calorie intake. SSBs account for just three percent of daily calories in South Africa. 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 largest contributors to the rise in energy intake are calorie rich foods such as vegetable oils (up 105 calories or 440 kJ per day),” says a BEVSA release.

Like many companies in the global soft drinks industry,  the South African sector has already begun reformulation efforts by cutting the added sugar in some drinks. BEVSA says members are committed to additional reformulation that will reduce average daily energy intake by at least 14-18 calories (59-75 kJ) per capita by 2020.

“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 the Government to find workable solutions which address obesity while protecting jobs and our economy, particularly at this critical juncture for the country’s future.”