The sugar industry, which has been on the verge of collapse in recent years, has been dealt another blow after finance minister Enoch Godongwana announced a hike in the sugar tax.
The levy first came into effect in 2018 as part of government’s plan to improve the health of South Africans and to reduce the related costs for the public and private healthcare systems. While the tax has been broadly welcomed by health experts and advocacy groups as a first step in the right direction, it has left many producers facing huge losses. The situation was further worsened by low international prices and changing consumption patterns.
In his budget speech on Wednesday Godongwana said after three years of no changes, the health promotion levy, which is commonly known as the ‘sugar tax’, will be hiked from 2.21c per gram of sugar to 2.31c. The levy applies to beverages with more than 4-grams of sugar content per 100ml.
Ahead of the budget, industry body SA CaneGrowers Association had called on government to scrap the tax arguing that there has been no evidence that it has been effective in achieving its primary objective, to reduce obesity levels in SA. The industry also said the levy has cost it more than R2bn since its implementation, with more than 16,000 jobs lost.
But government is moving to tighten the policy.
According to the Budget Review, consultations will also be initiated to consider lowering the 4-gram threshold and extending the levy to fruit juices. The Budget Review highlights that the levy netted the state R3.1bn in its first year of implementation, R2.4bn in 2019/2020, and R2bn the following year. It generated R2.2bn in 2021/2022, and Treasury estimates that collections will increase marginally to R2.3bn in the 2022 financial year.
The sugar industry generates income of about R14bn a year, directly employs around 85,000 workers and supports at least 350,000 jobs across the value chain. However, it has been on the brink of collapse in recent times due to falling prices, stiff competition from cheap imports, and a drop in sales volumes partly due to the sugar tax.
Andrew Russell, the chairperson of the SA Cane Growers Association, said the body will write to Godongwana to request a meeting to discuss government’s reasons for increasing the levy and the impact it will have on the industry.
Russell said recent modelling commissioned by the association shows that maintaining the sugar tax at the current level would have cost the industry a further 15,984 seasonal and permanent jobs and would be a major contributing factor towards a decline of 46,600 hectares of area under cane over the next 10 years.
“The fact that government has increased the tax means that there will be even more job losses than the 15,984 projection, and will result in a further reduction in the hectares under cane,” he said.
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