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National Treasury to Re-Think Sugar Tax

2017/18 South African National Budget Expectations

In February 2016 the Minister of Finance announced Government’s intention to implement, on 1 April 2017, a tax / levy on sugar-sweetened beverages (“Sugar Tax”).

The levy’s primary purpose is, supposedly, to improve human health by curbing the consumption of sugar; rather than to generate revenue for the fiscus. It is hoped the levy will reduce the incidence of so-called lifestyle diseases such as diabetes, obesity, heart disease and dental decay which are linked to, among other factors, excessive sugar intake.

In Mexico a similar tax reduced consumption of sugar-sweetened beverages by +/- 10%. However, research in the UK and US found that reduced beverage consumption has little effect on sugar consumption in general and, even more noteworthy, that reduced sugar consumption alone has negligible effect on the prevalence of lifestyle diseases.

This problem is much more complex to resolve than merely imposing a levy on only one of the high sugar-containing product types currently available in the market and requires a coordinated approach from government, NGOs and the private sector to even start resolving.

If this levy is nonetheless introduced, at least combining that with the correct application of the revenue yield should have more impact. Based on reported figures it is expected that, at the initial proposed levy-rate and at current sugar-sweetened beverage consumption levels, at least R4 billion in public revenue will be received by SARS per annum through this levy.

From a public interest perspective, the public revenue it generates should be applied exclusively for specific sugar-consumption-curbing and lifestyle disease awareness initiatives; e.g.

· Regulation of relevant product advertising;

· Compulsory ingredient information and warnings on labels;

· Social- and other media campaigns; and

· Information sessions at schools and workplaces.

If such revenue is not applied in this way, this levy might be seen as merely another instrument to generate revenue for the broad fiscus instead of a commendable effort by government to improve human health.

When designing the specific levy-structure, an exemption from all traditional customs and excise compliance requirements (including exemption from licensing and, of course, from paying this levy) should be considered for importers and local manufacturers of sugary drinks with added-sugar content of up to or less than a specified threshold as well as for local small and medium manufacturers producing less litres of SSBs per annum (irrespective of the added-sugar content) than a specified quantity .

Beverages which contain added sugar in excess of the specified threshold (excluding those produced by qualifying local small and medium manufacturers) will of course have to comply in full. However, the levy should in such instances be payable on all added sugar contained in those drinks and not only on the portion that exceeds the threshold.

This exemption threshold approach would be more effective in encouraging manufacturers to lower the added sugar content of their products to below the threshold, would assist local small and medium manufacturers and would be simpler for SARS to administer; compared to the proposed levy-free threshold approach.

As for the proposed implementation date of 1 April 2017, various pre-implementation activities still have to be finalised (including the publication of governing rules) before SARS will be able to consider actual licensing applications from importers and local manufacturers. This process can take several months to finalise.

With only two months remaining, it will be difficult to successfully implement this levy on 1 April 2017 as planned.

How can Deloitte help:

Deloitte’s global network of indirect tax and customs and global trade professionals provides advisory services along with a range of efficient outsourcing and co-sourcing options, applying innovative technology solutions.

Failing to account for VAT, GST, Sales & Use Tax, correctly can have a significant impact on business costs and cash flows.  Deloitte can help businesses to reduce costs, manage risk, and gain confidence about the way they are managing  their indirect tax affairs. Our services include:

Indirect tax consulting

Business model optimization for indirect tax

International indirect tax compliance and outsourcing

Transactional consulting for indirect tax

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