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Sugar tax will reduce GDP by R14bn

The Beverages Association of South Africa (BevSA) warned today that the proposed discriminatory 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. This is the equivalent of 0,4% points of GDP growth in 2016.  The Association announced the release of its formal response to National Treasury’s policy paper on this topic.

The proposed SSB tax could trigger 62,000 to 72,000 job losses, hurt the South African 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. The proposed tax will undermine the National Development Plan (NDP) commitment to encouraging economic growth, eliminating poverty, and increasing employment.

It is also unlikely to raise the revenues expected by the National Treasury.  Government revenues from its existing taxes could fall by at least R3,1bn per annum, representing more than 40% of the revenue the Government hopes to raise through the SSB tax. 

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.

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. 

All this would be done with very little impact on the country’s overall calorie intake.  SSBs account for just 3% 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).

A tax has been shown not to be the most effective mechanism to reduce obesity.

There is a range of different policy interventions that governments can use to tackle obesity. SSB taxes have been found to be among the least effective policies. The 2014 McKinsey Global Institute report on obesity analysed and ranked the most effective interventions to tackle obesity. The report 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.

We are committed to working with the 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.

BevSA members have already begun reformulation efforts by reducing added sugar in some beverages.  They are 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 calories (36 kJ) impact the Treasury hopes to achieve through this tax.  These industry commitments, through BevSA, have been endorsed by the Director General of the Department of Health.

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. 

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