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Sugar tax could cause over 70 000 job losses - report

Sep 23 2016 07:34
Lameez Omarjee

Johannesburg – The proposed 20% tax on sugar sweetened beverages (SSBs) could possibly generate only R4.4bn of the R7.5bn that was estimated, research by Oxford Economics revealed.

The independent consultancy released a research report entitled The Economic Impact of Taxation of Sugar Sweetened Beverages in South Africa commissioned by the Beverage Association of South Africa (BevSA) on Thursday. It highlights that the soft drink industry’s contribution to GDP could reduce by R14.6bn. This translates into 60 600 to 70 700 job losses in the industry.

READ: Sugar tax could slash slash GDP by R14bn - BevSA

The tax is estimated to generate R7.5bn, R6.6bn from direct tax and R0.9bn from VAT. However, the poor economic environment and increased job losses could see tax revenues decline by R3.1bn, the research showed.

The industry directly contributes R17.2bn to GDP, or 0.5%. It provides jobs for up to 133 000 people. The cost of sugar sweetened beverages could on average rise by 25%. This will effectively reduce soft drink volumes sold by a third and the size of the market by just over a quarter.


Impact on price

Cordial drinks will be hit the hardest, due to their higher sugar content. The estimated price per litre should increase between R4.28 and R4.72. Retail prices are estimated to rise between R2.48 and R2.91 per litre.

If consumers switch consumption from sugar sweetened drinks to diet versions of the same drinks, the impact on the industry will be limited. However, if they had to switch their consumption to non-soft drink products such as milk, it would have a “larger adverse” impact on the industry.

Market share is expected to fall from 80% to 72%. Diet drinks may increase their share in the soft drinks market, but will decline in the market as a whole. And 100% fruit juice is the only category expected to increase its share in volumes sold.

The reduction in the soft drinks consumed as a result of the tax results in a loss of 23.5% of sales revenue.

Spaza shops would be hardest hit

Sectors likely to face the biggest loss of jobs after the tax include manufacturing, with 9 487 jobs. Collectively wholesale, retail, hotels and catering jobs will fall by 7 222. Financial and business services are likely to have 7 197 losses, while other services will lose 5 575 jobs. The agriculture, forestry and fishing industries will shed 4 211 jobs. Transport and communications will lose 3 551 jobs. And thee soft drinks industry will be directly impacted by 3 394 job losses.

In the formal sector, retailers such as supermarkets are expected to have 2 923 job losses.  In the informal sector (spaza shops) an estimated 13 434 to 23 548 jobs would be lost, the report stated.

The report found the soft drinks tax would impact formal retailers less than the informal sector. Formal retailers earn 4% of revenue from soft drinks. In the informal sector, soft drinks account for 17% of  turnover and 30% of profits. 

Co-author of the paper Nick Stewart said health outcomes are still uncertain. "So far there has been no evidence that these taxes can change consumer behaviour."

Read Fin24's top stories trending on Twitter:

bevsa  |  gdp  |  jobs  |  vat  |  economy  |  sugar tax
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