Calls for government to get rid of major tax in South Africa

SA Canegrowers has called on Finance Minister Enoch Godongwana to use his upcoming Medium-Term Budget Policy Statement to scrap South Africa’s Health Promotion Levy (HPL).

Commonly referred to as the “sugar tax”, the HPL was implemented on 1 April 2018 to reduce the prevalence of obesity, diabetes, and related health issues.

The duty applies to non-alcoholic sugary beverages at 2.1 cents per gram of sugar content exceeding 4 grams per 100 millilitres. The first 4 grams per 100 ml are levy-free.

This applies to all locally manufactured and imported beverages with added sugar or other sweeteners. Pure fruit juices and certain milk-based products without added sugar are exempt.

While public health organisations and researchers have pushed for further increases in the levy, sugar industry stakeholders have called for its abolition entirely.

SA Canegrowers argued that since the tax was introduced, it has cost the sugar industry multi-billion rand losses every year, along with substantial job losses.

According to the group, the sugar industry lost 250,000 tons of sugar sales in the first year of the tax alone, while two mills in KwaZulu-Natal have since shut down due to the HPL.

A study commissioned by the National Economic Development and Labour Council (NEDLAC) found that 16,000 jobs had been lost across sugarcane farming and milling by 2019.

SA Canegrowers chairman Higgins Mdluli described the HPL as a “burden on the sugar industry” which the South African government could lift immediately by scrapping it.

“As long as the levy remains on the books, growers, millers, and investors cannot plan adequately for the future,” Mdluli said.

“Diversification needs long-term capital, and long-term capital needs policy certainty. The only way to provide that certainty is to scrap the sugar tax.”

Despite its name, revenue raised through the HPL is not ring-fenced for public health purposes, but is instead funnelled into the National Revenue Fund with other tax revenue.

SA Canegrowers questioned the purpose of maintaining a levy which imposes substantial costs on the sugar industry while its proceeds are not directed towards health objectives.

Lifting a struggling industry

SA Canegrowers’ calls to scrap the HPL come at a time when South Africa’s sugar industry is beset by a number of challenges which threaten its sustainability.

According to the group, the current sugar harvesting season has seen a 18% drop in sugarcane delivered to mills compared with the prior season.

This is in addition to a reported 17% decline in the recoverable value extracted from that sugarcane as it is processed at the mills.

While the milling season is expected to last longer than usual this year, lacklustre recoveries in sugarcane crushing volumes will lead to smaller harvests and, subsequently, losses for growers.

SA Canegrowers said this would compound the impact of foreign sugar imports flowing into the country and displacing local sugar sales.

This is in addition to the ongoing business rescue process at Tongaat Hulett, which threatens the sustainability of more than 18,000 sugar growers who depend on its mills for processing.

“Our small- and large-scale farmers are being hit from every side,” Mdluli said. “Less cane is reaching the mills, and local sugar processed at the mills is being displaced from retail shelves by foreign sugar.”

“Growers and millers have committed through the Sugarcane Value Chain Master Plan to create a future for the industry, but we need the same commitment from government policies.”

The Master Plan is a social compact between government and industry stakeholders designed to address threats to the sugar industry’s viability.

Through the plan, local retailers and manufacturers commit to procuring 95% of their sugar from South African producers.

SA Canegrowers recently raised concerns that signatories to the plan were not honouring these commitments, with local sales dropping as much as 20% over the past three seasons.

The group said that a scrapping of the HPL would alleviate some of the pressure facing the sugar industry and promote more local sugar sales.

“We therefore urge President Cyril Ramaphosa and his administration to scrap the sugar tax entirely,” Mdluli said.

“Doing so would give the industry the opportunity to focus on forward-looking initiatives, and the role that the sugar industry can play in green industrialisation.”