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Sugar tax is actually a stealth tax, claims IRR

Sep 15 2016 19:47
Lameez Omarjee

Johannesburg – There is no substantial evidence to indicate National Treasury’s proposed 20% tax on sugar- sweetened beverages (SSBs) may curb obesity, according to the South African Institute of Race Relations (IRR).

The IRR published a policy paper, A stealth tax, not a health tax. The paper indicates that the “mathematical model” developed by Professor Karen Hofman of Wits University, which it says Treasury relies on heavily as evidence to support the tax, does not hold water, bar five assumptions.

“The ‘mathematical model’ the Treasury cites as evidence that a 20% tax on SSBs will reduce obesity by 3.8% among men and 2.4% among women has no hard data to support it,” stated the IRR. Effectively the tax may reduce obesity in just over 32000 South Africans.

If obesity in 222 669 South Africans had to be reduced, it would essentially be 0.4% of the total population and these low numbers do not justify the introduction of the SSB tax.

The model assumes that a 20% tax will result in a 20% increase in the price of SSBs, and that the price increase will result in a reduction in SSB consumption, which will lead to a reduction in energy intake of 36kJ. It also assumes the reduced in daily energy intake will be enough to result in significant weight loss. Finally it assumes reduced body weight will reduce the prevalence of obesity in South Africa.

Further, the IRR cited a 2014 report by the McKinsey Global Institute, Overcoming obesity: An initial economic analysis, which looked at 44 anti-obesity interventions. It showed that sugar taxes are among the least effective methods to address obesity. It ranked 13 out of the 16 categories analysed.

Impact of obesity levers in the UK over a lifetime for the 2014 population

There is no direct evidence that the tax brings about any change in weight, or change consumption or physical activity levels, stated the IRR. McKinsey found the most effective interventions include portion control, reformulation, parental education, and promoting physical exercise at schools.

However governments prefer this tax in that it generates revenue, in South Africa this is likely to be R10.5bn a year. “The burden of the tax will fall most heavily on the poor, who spend more of their income on food and drink than the rich,” stated the IRR.

According to the Beverages Association of South Africa (BevSA), the proposed tax has the potential to reduce the industry’s contribution to South Africa’s gross domestic product (GDP) by R14bn.

Fin24 reported that the BevSA believes the proposed tax could trigger 62 000 to 72 000 job losses, and increase the burden on consumers with 25% price increases.

READ: Sugar tax could slash GDP by R14bn - BevSA

Lessons learnt from other countries

International experience shows that sugar taxes have little, impact on obesity, stated the IRR. SSB taxes may succeed in reducing the consumption of taxed products. However, it may not reduce consumption of sugar as people may switch to cheaper brands, shift their choices to other sugared products or reduce consumption of other products to afford the taxed products.

Denmark abolished its SSB tax in January 2014, some reasons for this being inflated prices, employment risks, an incentive to cross-border shopping, an increased administrative burden, and evidence of hoarding and higher calorie intake.

Research by Ecorys, a  European research and consultancy company, confirmed that SSB and food taxes have had an "uncertain" impact on obesity in Denmark, Finland, France, and Hungary. 

The IRR suggests that money raised through SSB tax be ring-fenced and directed to healthcare interventions or public education campaigns to curb obesity and not get lost in a general tax pot. More than 80% of South Africans already consume moderate amounts of sugar. The SSB tax indicates that the real motive behind it is to raise additional revenue.

Read Fin24's top stories trending on Twitter:

treasury  |  economy  |  sugar tax  |  revenue
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