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 inflicted 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 near-perfect 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 (also Pigouvian) 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 sugar-sweetened 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 sugar sweetened beverages” on which comment is due by 22 August 2016.