Proposed Sugar Levy Unlikely to Make Sizeable Dent in Fiscal Deficit

Updated on 13 February 2018

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Proposed sugar levy unlikely to make sizeable dent in fiscal deficit - PwC economistsEconomists on Monday predicted that the proposed levy on sugar-sweetened beverages (SSBs) set to take effect in April this year in South Africa was unlikely to make a sizeable dent in the fiscal deficit.

In 2016, National Treasury announced a Sugar Beverage Levy (SBL) on sugar-sweetened beverages (SSBs) scheduled to take effect on 1 April 2018.

When the levy takes effect in April, it will amount to 2.1 cents per gram of sugar per 100ml, above 4 grams per 100ml, down from an initial 2.29 cents per gram of sugar with no exempted amount.

The aim of the levy was to prevent and control obesity in South Africa, but key industry players also viewed it as a potentially significant new source of revenue that could help plug the growing fiscal deficit.

But PwC economists Lullu Krugel, Maura Feddersen and Thabiso Mofulatsi said that their estimations suggest the tax burden is approximately 10 percent, given current levels of sugar content, down from about 20 percent previously.

In a quantitative analysis of the proposed tax on SSBs, the economists used the PwC Economic Impact Assessment Model to derive the potential impacts based on a 10 percent sales reduction calculation due to potential excise driven price changes.

“We estimated that in a scenario in which the beverages industry makes no change to the sugar content of SSBs, the levy would result in an estimated R1.5 billion loss in sales revenue and a R1.4 billion excise revenue gain for government,” they said.

“However, a reformulation by industry would result in a lower loss in sales revenues of only R1.07 billion and lower than expected excise revenue gain for government of R990 million.

“Given the estimated fiscal budget deficit of up to R250 billion, additional revenues of between R990 million and R1.4 billion are unlikely to make a significant dent in plugging the deficit and could support the assertion that the levy will focus on curbing sugar consumption rather than providing significant additional revenue inflows.”

The economists said that it was unclear whether the levy will assist in reducing consumers’ sugar consumption, but said that the industry facilitates lower sugar consumption by reducing bottle sizes and through reformulation.

“It remains to be seen how South Africans will react to the current and impending price change of SSBs and if the levy can indeed assist in reducing obesity. It is clear that monitoring and evaluation are key tools to help government and industry understand the effectiveness of this initiative to prevent and control obesity in South Africa.” (via African News Agency)

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