DUTY CALLS

Sugar Tax –
Comment due
On 17 July 2015 I wrote
a column for another
publication titled “It’s time
for the fat taxes’, and then
on 18 March 2016 another
“It’s back to the future as
Gordhan announces tax on
sweetened drinks”.
In the first I discussed
the taxation on what
has been called the ‘next
tobacco’ (sugar) and the
other ‘white death’ or the
‘slow, silent killer’ (salt).
To clarify, ‘sin taxes’
are levied to directly pay
for the damage inf licted
on society when these
goods are consumed,
and to increase the price
of the targeted goods
in order to reduce their
attraction and use.
These taxes are aimed at
generating revenue (fiscal
measure) and redirecting
the revenue generated
to compensate for the
negative externality,
as well as effecting
behavioural change.
Owing to the addictive
nature of the goods, and as
a consequence of the nearperfect
inelastic demand for
them, the preferred remedy
seems to be an increase
in the rate of taxation.
‘Sin taxes’ are considered
to be both Pigovian taxes
and sumptuary taxes.
A Pigovian tax is a tax
applied to correct a market
activity that is generating
negative externalities. ‘Sin
taxes’ are also considered
to be sumptuary taxes, as
their intention is to reduce
transactions that society
considers undesirable. As
with Pigovian taxes, their
imposition serves to mitigate
the use of these goods.
My proposition was
for the imposition of fat
taxes on sugar and salt
rather than on goods of
which these substances are
ingredients. In essence,
similar to the liquor and
tobacco industries, these
would be a tax at source
or a duty at source. The
reasoning is fairly obvious:
the administration of the
taxes would be simplified
in that it would not be
concerned with the array
of other goods in which
it is used in production.
The cost of collecting
the taxes would, thus, be
greatly reduced as they
would be very easy to
administer. An added
advantage would be
that, in both industries,
there is a manageable
number of companies, and
production tends to be
confined to certain areas
or regions.
Then in the finance
minister’s Budget speech
of 24 February he made
mere mention of the
“introduction of a tax
on sugar-sweetened
beverages”. In the National
Budget review, under
the headline ‘Promoting
public health and social
wellbeing’ and under the
subheading ‘Taxing sugarsweetened
beverages’,
more details were provided
and it was proposed that
such a tax be introduced on
01 April 2017.
Quite innovative this?
Well, during the 1990s and
early 2000s, South Africa
did, in fact, levy ‘sin taxes’
on soft drinks. The abolition
of this tax on 01 April 2002
was noted in the Budget of
20 February 2002.
National Treasury on
07 July 2016 published for
public comment a 30-page
“Policy paper and proposals
on the taxation of sugarsweetened
beverages” on
which comment is due by
22 August 2016.