‘Job-killing’ tax increase on the cards for South Africa

With the Budget Speech quickly approaching, there have been growing calls for the Treasury to increase South Africa’s sugar tax. However, others say that this could lead to the loss of thousands of South African jobs.

In 2018, the Health Promotion Levy (HPL), better known as the Sugary Drinks Tax, was introduced in South Africa.

The levy’s purpose was to support the Department of Health’s deliverables to decrease diabetes, obesity, and other related diseases in South Africa.

In his 2022 budget speech, Finance Minister Enoch Godongwana proposed raising the health promotion levy from 2.21 to 2.31 cents per gram.

In the 2023 budget, though, he announced a freeze on the levy for 2023/24 and 2024/25 to allow the sugar industry to restructure amid regional competition and recent flood impacts.

However, with the Minister’s 2025 budget speech approaching, the possibility of an increase in this levy has been highly anticipated.

While some parties have urged a large increase, others have appealed to the minister to scrap it altogether.

SA Canegrowers, an industry body representing 24,000 small-scale and 1,200 large-scale sugarcane growers, said that this tax has been “a job wrecking-ball in rural economies in South Africa.”

As a result, the group has urged Godongwana to scrap the sugar tax.

“Since the introduction of the sugar tax in 2018, the sugar industry has repeatedly sought to engage with Treasury about how the tax is harming the economy and about the ways the sugar industry is seeking to find a path forward.”

“According to an independent study by Nedlac, the sugar tax destroyed more than 16,000 jobs and R2 billion in income in its first year alone.”

SA Canegrowers said that the minister’s moratorium on increases in the tax until this year came as a welcome move.

However, they explained that activists are currently seeking increases in this “job-killing tax”, even though there is no conclusive evidence that the tax has had any positive effect on health outcomes or reduced diabetes or obesity.

“Moreover, the tax was based on a single academic modelling study – with no real-world evidence to support it. The government also promised to commission an economic impact study of the tax, which is still outstanding.”

“The only concrete evidence we have about the tax is that it led to job losses, yet foreign-funded activists demand an increase based on conjecture without any concern for the rural economies it could destroy.”

SA Canegrowers emphasised that asking for the tax to be scrapped does not mean they are asking for a handout, though.

“Since 2020, industry associations representing farmers, millers, retailers, and food producers have worked closely with the Department of Trade, Industry and Competition to encourage transformation in the industry and find new markets for sugarcane products.”

“The work, encapsulated in the Sugar Value Chain Master Plan 2030, has achieved much in planning for a stable future for the industry, including identifying promising new markets such as Sustainable Aviation Fuels (SAFs).”

“Such new initiatives can safeguard existing jobs at farm level but can also create new jobs and economic opportunities on farms and in new industries.”

However, they said that realising new markets will naturally, take time.

“To speed this up, Government policy and legislation need to foster an enabling growth environment to encourage private investments in the biofuel production facilities that will be needed.”

SA Canegrowers added that the sugar tax puts excessive pressure on sugarcane growers, who are already operating in a challenging environment.

“Should sugarcane growers leave the industry, the viability of alternative projects such as biofuels and sustainable aviation fuel are threatened as these projects rely on a stable supply of sugarcane as a feedstock.”

“Small-scale and large-scale sugarcane growers are often the only employers in rural communities where there are few other options for jobs. The economic stability they bring to families in Mpumalanga and KwaZulu-Natal should not be underestimated.”

One particular group of activists asking this tax to be increased is the Healthy Living Alliance (HEALA), which said that South Africa faces a dire health crisis.

They have called for a 20% levy, including on fruit juice, which they say has the chance to cut disease, save billions & boost productivity.

“We are calling for an increase in the Health Promotion Levy or better regulation of the food environment,” CEO of Heala, Nzama Mbalati, told SABC.

“This does not stand alone – we also support taxation on other unhealthy products such as tobacco and alcohol.”

Mbalati said that HEALA believes these are important interventions, along with other measures to prevent non-communicable diseases such as cancer and diabetes.

These steps are essential to reducing the population’s exposure to harmful products.

He said that he hopes the minister will take note of this, as these taxes lose value if they are not increased, even in line with inflation, as seen with the HPL.

Although he acknowledged that other factors, such as excess salt and saturated fats, also play a role in poor health, he said that the effects of sugary drinks should not be downplayed.

This is also in line with recommendations from the World Health Organization (WHO), which state that simply reducing the intake of sugary drinks and liquid sugar can go a long way in preventing diseases.

“Unhealthy industries do not like to be regulated,” Mbalati said. “But what choices do we have as a government? We are not asking for these companies to shut down, we’re asking for them to look at diversification.”

He pointed out that notably, other BRICS countries like Brazil and India have moved away from producing sugar cane purely for consumption purposes, and are now looking at other uses such as biofuel as well.

“The South African sugar industry has always used the lame excuse of not wanting to be regulated, of not wanting to diversify, and wanting to hold the population at ransom to feed on excessive consumption of sugar.”

“That’s unfair, and that’s not good for the population. When we reap the rewards of the disaster and the tsunami of diabetes in this country, the sugar industry is not going to be there to save us.”