The proposed tax will be implemented through the Customs and Excise Act (Act 91 of 1964), but an additional category for sugar-sweetened beverages (SSBs) would have to be created under the Schedules to the Act as a levy on selected products.
However, adopting a final levy structure, enabling legislation and allowing for aspects like licensing applications from importers and local manufacturers of SSBs will take time, and according to Deloitte’s customs and global trade team, the implementation of this levy will realistically not be possible in 2017.
“It is our opinion that implementing this levy will probably at the soonest only be possible at the start of the South African Revenue Service (SARS) 2018/2019 fiscal year on 1 April 2018,” says Riaan Smit, associate director: customs and excise tax from Deloitte.
A tax on SSBs was introduced in this year’s budget speech, with a start-up date set for next year, in an attempt to reduce excessive sugar intake, following a broader department of health initiative to reduce obesity prevalence by 10% by 2020 amid growing global concerns regarding obesity caused by an overconsumption of sugar.
It is proposed that a tax rate of 2,29 cents per gram of sugar be implemented based on the current product labelling framework. This rate roughly equates to a 20% tax incidence for the most popular soft drink, Coca-Cola, averaging 35g/330ml. Estimates are that the levy could generate at least R4bn in public revenue a year.
Deloitte cautions in its comments on the proposals that the revenue generated from the tax should not form part of the general fiscus but should rather be ring-fenced for application towards achieving the propagated objective of the tax – which is to curb the consumption of sugar and thereby generally improving human health.
It also says a targeted levy-rate should be applied per gram of added sugar contained in SSBs (as opposed to a flat levy-rate per litre of SSB) with an exemption for SSBs containing less grams of added sugar than a specific threshold.
“We, however, propose that a SSB containing more grams of added sugar than the specific levy-free threshold should pay the levy on all grams of added sugar it contains; not only on that exceeding the threshold. It is our opinion that this approach will be more effective in encouraging manufacturers to reduce the added-sugar levels of SSBs (to under the threshold) than the current proposed approach of taxing only the grams of added sugar exceeding the threshold,” says Petrus Marais, senior manager: customs and excise tax from Deloitte.
Timelines for implementation of all aspects of the levy together with various practical realities don't appear to justify a start date of early next year.
“After 22 August 2016, comments on the national treasury proposals will have to be considered and this could take until mid-September 2016, while the final levy-structure will have to be decided after that,” says Marais.
Then comes the need for enabling legislation to be drafted, comments requested and considered and final versions drafted, approved by parliament and published/gazetted; followed by governing rules, with comments requested and considered and final versions drafted - which must include the official implementation date - and published by the commissioner of SARS.
After August 2017, which is the approximate publishing-date of the final governing rules, affected entities will need time to prepare their businesses administratively for all compliance requirements and this could supposedly take place until the end of 2017.
“There are a number of basic aspects which affected entities will presumably have to prepare for, or get in place before they may legally import and/or manufacture an excisable product and which, in our experience, often take considerable time to finalise,” says Smit.
These aspects include:
Meanwhile, from early 2018 onwards, SARS will have to consider actual licensing applications from importers and local manufacturers of SSBs.
“In our experience, a warehouse licensing application takes on average four months (often up to six months) for SARS to finalise,” says Marais.
“It is believed taxes on foods high in sugar are potentially a very cost-effective strategy to address diet-related diseases. However, this is a major initiative with myriad layers and more realistic timelines and collection rules will be needed,” concludes Smit.
