The Impending Sugar Tax: Sugar Under The Spotlight

At the time of writing this article, the Policy Paper released for comment by the National Treasury on 8 July was the most current information available. The paper defines SSBs as beverages that contain added caloric sweeteners (such as sucrose, high-fructose corn syrup (HFCS), or fruit-juice concentrates) which include but are not limited to: (i) soft drinks; (ii) fruit drinks; (iii) sports and energy drinks; (iv) vitamin water drinks; (v) sweetened iced tea; and (vi) lemonade, among others. The fruit juice manufacturing companies can sigh with relief for now, because the Policy Paper went on to stipu- late that any beverage that only contains intrinsic sugars, or “sugar naturally built into the structure of the ingre- dients”, should be excluded from the tax; the examples provided were unsweetened milk and milk products, and 100% fruit juice.

The Policy Paper makes a distinction between “intrinsic” and “free” sugars, and it seems that the intention is to tax “free sugars” only. Instead of “free sugars”, the South African labelling regulations (R. 146/2010) refer to this group as “added sugars”.

However, it is interesting to note that the WHO reference used in the Policy Paper for the definition of “free sugars” refers to all monosaccharides and disac- charides added to foods by the manufacturer, plus the sugars that are naturally present in honey, syrups and fruit juices. This is more in line with what R. 146 defines as “total sugar”: the sum of all intrinsic and added sugars.

If one considers these definitions and the intention of the tax, would it not be technically correct to refer to the drinks that they intend to tax as being “free sugar drinks” or “drinks with added sugar” (to be in line with current South African definitions), rather than referring to SSBs?

The Policy Paper presents three taxation structures that have been used in other countries, and goes on to make a final recommendation: that a tax on sugar-sweetened beverages based on sugar content should be implement- ed (option 2).

The literature suggests that a 10 to 20% price increase for the end consumer of the SSBs will be necessary to have a significant impact on purchases, consumption and, ultimately, on obesity and population health. If option 2 is implemented at a price increase of 20%, the price increase on a litre of Coca-Cola will be in the region of R2.29.

The actual implementation of this tax will be achieved in a similar way to other excise duties and levies, such as those used for liquor and cigarette tax, where a duty-at- source will be applied. As noted above, it is important to consider that the consumer will need to feel the pinch of a price increase. In February this year, the 2016 Budget People’s Guide (released by the South African National Treasury and Revenue Service) alerted us to a government proposal to introduce a tax on sugar-sweetened beverages (SSBs) with effect from 1 April 2017. This measure is considered one of the most cost-effective interventions for reaching an ambitious target of reducing obesity prevalence by 10% by 2020.

Table 1: Tax options

November 2016 FST Magazine

For SSBs that currently do not apply nutritional labelling, it is proposed that a relatively higher fixed amount of added sugar is assumed; 50g sugar per 330ml is suggested as a default amount. This proposal is based on the assumption that the “total sugars” indicated in the nutritional table only indicate the added (free) sugar, when in fact the “total sugars” denote all sugars added as well as intrinsic sugars.

This leaves us asking a practical question: should the nutritional tables display both the free and the intrinsic sugars on a drink product label, as proposed by the FDA in the USA, in order to inform the customer which sugars are being taxed?

Many believe that consumers will simply move away from premium brands to buy cheaper versions, so this form of tax may not be the answer. However, taxing SSBs could potentially raise considerable revenue, and contribute towards relieving pressure on the South African health- care system.

The Department of Health Strategic Plan for the Preven- tion and Control of NCDs 2013–2017 suggested that the best buys – or areas to focus on, in order to tackle issues concerning diet, physical activity and obesity for South Africans – should include: physician counselling, school- based interventions, mass media campaigns, worksite interventions, food labelling, food advertising regulations, and fiscal measures (taxes). The questions are: Will the funds generated by the taxes imposed on SSBs be distrib- uted to the budgets managing the progress in the areas identified as “best buys”?, and What involvement will the SSB manufacturing companies have as to how these taxes are used in the plan to prevent and control NCDs?