Taxation

Sugar Tax Update

The Sugar Tax was initially announced to be implemented in South Africa, from 1 April 2017, as a tax on most non-alcoholic beverages containing added caloric sweeteners/sugar. In the last few months, the proposed structure of this tax has changed.

In February 2017, the National Treasury (“NT”) published a proposed new structure for this tax, after consulting with various role-players in both the sugar- and non-alcoholic beverage industries, as well as with the Department of Health, health practitioners, related NGOs and organised labour, in order to find the most suitable and acceptable structure for this proposed tax.

In June 2017, the NT and the South African Revenue Service (“SARS”) published a response document based on comments received and on the outcome of Parliamentary hearings. This sheds some light on the currently proposed structure for this tax.

The ‘Sugar Tax’ is currently proposed to be implemented as –

  • A product-specific levy on non-alcoholic beverages (ready-to-drink beverages and concentrates in both powder- and liquid form), excluding 100% pure fruit juices and vegetable juices as well as unsweetened milk and such milk products; and
  • Containing any sweetener (caloric and non-caloric; intrinsic and added).

This ‘sugar tax’ is thus, at this stage, proposed to be a ‘levy on specified sweet beverages’; not ‘sugar-sweetened’ beverages as before.

The levy payable will be calculated on a specific taxable quantity (as opposed to value/ad valorem); i.e.

  • Per gram of sweetener contained in the beverage, but only on those grams above a 4 gram/100 ml exemption threshold; and
  • At a rate of –
    • Ready-to-Drink Beverages:
      2.10c per gram of sweetener above 4 grams per 100ml
      = R1.26 per liter containing 100 grams of sweetener
    • Concentrates:
      1.05c per gram of sweetener above 4 grams per 100ml
      (the actual levy-cost per liter consumed depends on the dilution factor)

Deloitte had earlier proposed that importers and local manufacturers of beverages with sweetener content of up to or less than the specified threshold should be exempted from all traditional Customs and Excise compliance requirements (including exemption from licensing and, of course, from paying this levy).

Such an exemption threshold approach (compared to the proposed levy-free threshold approach) will –

  • Negate all licensing- and related administrative costs for entities dealing in qualifying products; and
  • Be more effective in encouraging manufacturers to lower the sweetener content of their products to below the threshold.

The NT and SARS response document states that ‘products with sugar content below the threshold will not be affected’.  It is not clear though whether ‘not affected’ means ‘not having to license’, or only ‘not having to pay the levy’.

The levy will be regulated in terms of the Customs and Excise Act, 1964, and administered similar to the other preventive levies currently overseen by Excise; e.g.

  • Imported into or locally manufactured in bonded licensed warehouses;
  • Compulsory accounting and periodic submission of Excise accounts for locally manufactured product; and
  • Self-assessment and payment of the levy in terms of the ‘Duty at Source’ principles.

After recent negotiations between government, labour and industry, Matthew Parks from the Congress of South African Trade Unions (Cosatu) was quoted in News24 as saying that the implementation of this tax will go ahead, possibly later this year but probably only in March 2018.

Importers and, especially, local manufacturers of non-alcoholic beverages are still waiting for the publication of the all-important governing rules by the Commissioner for SARS, which should provide a clearer picture regarding the administration of and compliance requirements for this proposed levy.

About the author

Deloitte South Africa

Deloitte is one of the country’s leading professional services firms in Southern Africa, and is dedicated to assisting companies succeed in the business environment- whether it be through our tax, audit, consulting or financial advisory services.

At Deloitte, we understand that solutions are not just a static one dimensional report, but rather, an integrated and innovative answer that helps our clients to better understand key complex industry issues. Not only do our solutions assist our clients in making strategic business decisions, but our unique approach also allows companies to succeed in a competitive business environment by staying ahead of industry trends. Through the collective expertise of nearly 3600 people in 8 cities in South Africa and in 16 cities in Southern Africa, and as a member firm of the global organisation Deloitte Touche Tohmats, we have access to deep insightful and intellectual capital of more than 150 000 people worldwide.

Deloitte- A Culture of Excellence
A key contributor to Deloitte and our culture is the development of human capital. At Deloitte we believe in investing in our culture, in our clients and in our people. The very essence of Deloitte is to offer services of excellence, to both clients and staff, and we believe that it is this culture of excellence that will help us succeed.

Leave a Comment