The Beverages Association of South Africa (BevSA) believes that the proposed 20% tax on sugar sweetened beverages (SSBs) could trigger between 62 000 and 72 000 job losses, hurting the South African economy and exacerbating the broader fiscal and societal costs associated with unemployment.

Finance Minister Pravin Gordhan first made the proposal during his budget speech in February, suggesting that a tax on SSBs would help South Africans reduce their intake of excessive amounts of sugar in a bid to reduce the country’s obesity rate.

However, BevSA director Mapule Ncanywa says that SSBs account for only 3% of the daily calories consumed in South Africa.

Addressing the proposed tax at a media briefing on Tuesday, Ncanywa explained that the tax is levied per gram of sugar, and that smaller players who compete with lower prices and larger pack sizes will be severely impacted.

She added that the SSB tax would represent a higher markup on the beverage industry’s relative prices, which could be as high as 80% on 2 units.

Further, this would be done with very little impact on the country’s overall calorie intake.

“The average daily energy consumption in South Africa increased by 191 daily calories per capita from 1991 to 2011. As a result, adult obesity rates grew from 22% to 27.7% over this period,” she said.

Ncanywa pointed out that the biggest contributors to the rise in energy intake are calorie-rich foods, such as those containing vegetable oils.

Referencing the 2014 McKinsey Global Institute report on obesity, which analysed and ranked the most effective interventions to tackle obesity, she added that sugar reduction reformulation and smaller portion sizes were the two most effective interventions in the UK, whereas sugar taxes did not rank among the top ten interventions.

“In addition, there is no conclusive evidence from other markets that imposing a tax on soft drinks helps people to lose weight,” she said.

Ncanywa further argued that the proposed tax would undermine the National Development Plan’s commitment to encouraging economic growth, eliminating poverty and increasing employment.

“This tax is unfair and regressive and will hit the poor the hardest, as they spend a higher portion of their income on food as opposed to the wealthy,” she noted.

She added that the industry was worried about the impact of the tax on business profitability, as well as direct and indirect jobs, highlighting that it would force 10 000 small businesses to close.

Also speaking at the briefing, BevSA chairperson Velaphi Ratshefola noted that the tax would destroy small players and hurt big players in the industry.

“We don’t want to fight government on this, we want to work with the Department of Health, like we have been doing, to tackle the obesity problem in South and find a win-win solution,” he said.

Ratshefola further noted that BevSA had plans to reformulate beverages, offer smaller pack sizes, expand consumer access to low- and no-calorie beverages and invest in health education and awareness programmes.

Ncanywa added that BevSA members had already begun reformulation efforts by reducing added sugar in some beverages, which would reduce average daily energy intake by at least 14 to 18 calories (59 to75 kJ) per capita by 2020. 

“This is double the estimated 7 to 9 calorie impact the Treasury hopes to achieve through this tax,” Ncanywa said.

Meanwhile, in a policy paper released by the association on Tuesday, the industry body stipulated that the proposed tax had the potential to reduce the industry’s contribution to South Africa’s gross domestic product (GDP) by R14-billion, or the equivalent of 0.4 percentage points, in 2016. 

“It is also unlikely to raise the revenues expected by the National Treasury. Government revenues from its existing taxes could fall by at least R3.1-billion a year, representing more than 40% of the revenue government hopes to raise through the SSB tax,” the policy paper said.
 
It further mentioned that the tax would, through its impact on unemployment, result in increased unemployment insurance fund payments of about R7-million.

Ncanywa added that the 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,” she argued.