Sugary Beverages Tax; Rates and Monetary Amounts Bill: public hearings

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Finance Standing Committee

31 May 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

National Treasury indicated that revisions in the Rates and Monetary Amounts and Amendment of Revenue Laws Draft Bill were made after extensive consultations. Treasury took all inputs into consideration to come up with the revised Draft Bill.

Design changes based on comments on the sugary beverages tax or health promotion levy were:
- Introduction of a threshold: first 4g/100ml is exempt (only sugar content above 4g/100ml will be taxable)
- Tax rate was lowered slightly from 2.29c/g to 2.1c/g
It was envisaged that the levy would be effective on the date of promulgation of the Rates Bill. Treasury expected opposition from business after every tax proposal, notwithstanding the significant downward review of the levy to a point that Department of Health felt Treasury was ‘selling out’. Contrary to popular belief, the NEDLAC process was not going smoothly; there were reasonable timelines but certain stakeholders had an incentive to delay the process.

Wits School of Oral Health, in its submission, said they believed that implementation of the levy would create an enabling environment for making healthier choices. Dental decay was a public health problem affecting children in the country. 80% of tooth decay among children remains untreated because the public oral health sector is unable to cope with the burden of disease as dental treatment is very expensive. In oral health literature, it is undisputed that there is a direct link between sugar and dental decay, and sugary drink consumption and tooth decay. Sugary drinks have a very high sugar content and contain phosphoric and citric acids. The WHO recommends no more than 25g of sugar/day = 6 teaspoons. However, most sugary drinks were above the daily recommended dose. Therefore, levy on sugary drinks could improve oral health, alongside other oral health promotional strategies. Implementation of the levy would lead to reduced sugar consumption, thereby a reduction in dental caries incidence and health care expenses associated with treating non-communicable diseases (NCDs).

Priceless SA said South Africa was in a health crisis. There are now 19 million obese or overweight adults and over 20% of children were obese or overweight. Diabetes is also a crisis in motion and the largest killer of South African women. The impact on the health system was staggering; 10 000 new cases of diabetes are reported every month in the public healthcare sector. Evidence linking sugary beverages to obesity and related diseases in adults and children was indisputable. Therefore, well-designed fiscal policies coupled with other actions would contribute to reducing the health/economic burden of non-communicable diseases (NCDs). Empirical evidence suggests that impact of the levy was strongest at a minimum of 20%. Priceless SA indicated the changed rate structure was a significant concession to industry interests as the reduction in the effective tax rate from 20% to 10% was below WHO recommendations. Therefore, health effects will likely be smaller. The lower marginal rate on concentrates was a further concession to industry in the midst of an obesity and NCDs crisis. Commitment of revenue to health promotion was important.

Healthy Living Alliance (HEALA) lamented that people suffer from the negative, harmful effects of sugar-laden food-like products daily. People did not know the truth about these products they ingest and were thus at the mercy of diseases that come with their consumption. The cost of inaction was huge. The levy was a “mass prescription” for the nation. With better health, the country could pursue individual and collective goals, ensuring the country's prosperity. HEALA welcomed and commended government on its proposal for the implementation of the sugary drinks tax and strongly advocated for it. Stakeholders still had work to do, but the levy was a good start. HEALA recommended that revenue generated be put back into the health care sector to fund poorly resourced hospitals. Revenue could also be used to fund public health interventions aimed at prevention of NCDs. With behavioural changes enforced by policy and provision of correct information on the adverse impact of sugary beverages, South Africans could work to find their footing again in this turbulent landscape.

National Council Against Smoking (NCAS) identified the urgency of implementing the levy in an effort to reduce consumption of sugary beverages. Industry opposition to the levy was synonymous to resistance by the tobacco industry over the last 50 years in the backdrop of sterner regulations. Industry was in the habit of misusing economics. However, excise taxes on harmful products are a “win, win, win for governments”. They are the most effective method of reducing consumption, increasing government revenue, as well as raising funds that can be used to promote health or replace a public harm with a public benefit.

The South African Paediatric Association (SAPA) applauded the introduction of a policy to tax sugar sweetened beverages. The Government has a duty of care for children and to promote the attainment of optimal health, and the sugary drink tax would assist in achieving this. SAPA believed that the policy can be strengthened to make it even more effective. It urged government to be steadfast in the face of opposition to the levy from those with commercial interests. It implored Treasury and the South African Revenue Service (SARS) to design and legislate the strongest possible policy.

COSATU, in its submission, stressed that it was not a homogeneous organisation, thus it had a motley of views. COSATU emphasised the need for alternative jobs to cater for job losses as an unintended consequence of the levy. Its desire was not to collapse government efforts. Ring-fencing the levy to support government’s health objectives and to mitigate unintended consequences would be the way to go. It pointed out the need for further engagements at NEDLAC on over-taxation, water hikes, wasteful expenditure, corruption and priorities, and ring-fencing the levy for the sugar transition and later health promotion. Further concerns were lack of sector transition plans, the rush by Treasury for 2017 implementation without any comprehensive socio-economic impact analysis (SEIAS), absence of the Departments of Trade and Industry, Agriculture, Forestry and Fisheries and Economic Development in the discussion, and insufficient engagement with the sectors that would be affected.

Business Unity South Africa (BUSA) submitted that engagements on the levy were unsatisfactory. Business supports the underlying health objectives, but the objectives should be realised in a manner that counteracts the likely negative effects. However, the proposed levy on sugary beverages – in the absence of mitigation strategies to ameliorate the negative socio-economic impact – would result in sub-optimal health outcomes and significant economic and job losses. Alternate solutions to a levy could involve industry partnering with government and labour to tackle the health issue more effectively, and business was willing to be bound to measurable consumption and economic commitments. BUSA believed it was imperative for the NEDLAC process to be afforded an opportunity and sufficient time to co-develop appropriate strategies to bring about the desired health outcomes whilst addressing the considerable socio-economic challenges that would arise from the proposed levy. Business urged the Committee to remove the Health Promotion Levy on Sugary Beverages from the Draft Rates Bill, pending the finalisation of the existing NEDLAC process and the co-development of mitigation strategies that are supported by government, business and labour.

South African Sugar Association (SASA) pointed out that the South African sugar industry is an important contributor to the economy, with total average industry income of R14 billion per annum. However, it was an industry under siege. The sugar industry was fighting for its survival on the backdrop of the worst drought in history, rising input costs, inadequate tariff protection; thereby pushing the industry on the edge of sustainability. The levy would negatively impact both the sugar milling and sugarcane agricultural sectors. Loss in revenue and reduction in sugar consumption would result in a shrinkage of the industry. The potential of sugarcane agricultural land going out of production and the consequent jobs losses are in contradiction to the National Development Plan and Nine Point Plan. SASA recommended that the proposed levy on sugary beverages be withdrawn in its entirety from the parliamentary process to allow all stakeholders sufficient time to consider the adverse implications of the levy, alternatives and proactive mitigation. Meaningful engagement must take place between National Treasury and the sugar industry. The NEDLAC process should be allowed sufficient time to be properly concluded.

Etsweletse Trading Solutions lamented a flawed consultation process. Small players had no knowledge of the levy as nobody had approached them about the proposed levy; government consulted only big business. This conduct maintained the marginalisation of small black businesses in important matters that affect industry and the country. The levy would undermine government’s program of developing black industrialists in that emerging black producers in the industry would inevitably have to close shop owing to the anti-competitive nature of the levy.

Tiger Brands said the basis of its submission was to indicate the inequitable treatment of concentrates if the proposed health promotion levy was applied as is. After the last parliamentary hearing, a separate levy for concentrates was proposed which was half that of a ready-to-drink beverage (RTD), thus 1.05c per gram of sugar per 100 ml of concentrated beverage compared to 2.1c per gram of sugar per 100 ml. Although this acknowledged that concentrates needed to be addressed differently, it still results in the inequitable treatment of concentrates compared to RTD beverages.

The Chairperson said the Committee was impressed by the quality of academic input into the discussions. However, there was also need to find a balance between health concerns and unintended consequences from the policy, such as job losses. Members commented that some sectors felt the levy had not been adequately canvassed through the NEDLAC process. The crux was to convince the Committee that the tax would have the desired effect and the levy would have the desired behavioural consequences. Members said stakeholders had to do the right thing as life was more important than profits. Defending a healthy society was paramount.

Meeting report

The Chairperson, in his opening remarks, noted that the proposed Sugary Beverage Tax (SBT) has been renamed the Health Promotion Levy (HPL).

National Treasury presentation
Mr Mpho Legote, Chief Director: Vat, Excise Duties and Sub-National Taxes, National Treasury, said that changes to the Rates Draft Bill were made after extensive consultations. Treasury took all inputs into consideration to come up with the revised Rates Draft Bill.

Design changes to the Health Promotion Levy based on comments were as follows:
- Introduction of a threshold: first 4g/100ml is exempt (only sugar content above 4g/100ml will be taxable)
- Tax rate was lowered slightly from 2.29c/g to 2.1c/g

The revised design lowers the tax compared to the initial proposal. The price of a regular can of Coca-Cola will increase by 46 cents and a 1 litre bottle by R1.39. It was envisaged that the levy would be effective on the date of promulgation of the Rates Bill.

Wits School of Oral Health submission
Dr Mpho Molete, Specialist in Community Dentistry, said the Wits School of Oral Health believed that implementation of the levy would create an enabling environment for making healthier choices. South Africa was one of the most obese countries on the continent. As at 2012, 11% of men and 39% of women were obese .1 in 4 children are also overweight/obese. One sugary drink a day increases risk for dental caries by 48% for children and 31% for adults. Clearly, dental decay is a public health problem affecting children in our country. 80% of tooth decay among children remains untreated because the public oral health sector is unable to cope with the burden of disease as dental treatment is very expensive. In oral health literature, it is undisputed that there is a direct link between sugar and dental decay, and sugary drink consumption and tooth decay. Sugary drinks have a very high sugar content and contain phosphoric and citric acids. The WHO recommends no more than 25g of sugar/day = 6 teaspoons. However, most sugary drinks were above the daily recommended dose.

Tax on sugary drinks could improve oral health, alongside other oral health promotional strategies. Implementation of the levy would lead to reduced sugar consumption, thereby a reduction in dental caries incidence and health care expenses associated with treating non-communicable diseases (NCDs).

Priceless SA submission
Dr Nicholas Stacey, Health Economic Researcher: Priceless SA, said South Africa was in a health crisis. There are now 19 million obese or overweight adults and over 20% of children were obese or overweight. Diabetes is also a crisis in motion and the largest killer of South African women. The impact on the health system was staggering; 10 000 new cases of diabetes are reported every month in the public healthcare sector. Significant growth in diabetes among medical scheme members had been reported as well. Sugary beverages were to blame. These drinks have incredibly high sugar content and have no nutritional value. An average South African consumes 260 servings of Coca-Cola per year, three times above the worldwide average. While obesity rose, sugary beverage sales were also growing.

Evidence linking sugary beverages to obesity and related diseases in adults and children was indisputable. Consumption increases risk of diabetes and weight-gain. Therefore, well-designed fiscal policies coupled with other actions would contribute to reducing the health/economic burden of non-communicable diseases (NCDs). Empirical evidence suggests that impact of the levy was strongest at a minimum of 20%. Low-income and young people are most responsive to price change and taxes on beverage sugar content will have greatest impact. This is because increased prices reduce sugary drinks consumption. In absolute terms, raised prices reduce resources for sugary drink consumption (Income Effect) and tax also raises price relative to alternatives (Substitution Effect).

He pointed out that the sugar industry has been using scare tactics such as exaggerated job loss claims to compel government to relax the levy. Industry groups hired financially-conflicted consultants to undertake non-academic studies, making misleading assumptions such as that people would not buy other non-taxed beverages or other products, and that revenue would not be spent by government. All of their “studies” ignored beneficial impact of reduced disease and disability. In other settings, underlying trends in employment continue regardless of tax. Also, non-communicable diseases are an economic burden on households through lost wages of prime-age adults due to death and disability as well as significant costs of mortality (such as funerals) on households. The Health Promotion Levy presented an opportunity to reduce consumption of these harmful products, incentivise production and marketing of healthier products and simultaneously raising revenue for further health promotion interventions. Thus health benefits need to be considered when taking into account concerns from industry.

In conclusion, Priceless SA indicated the changed rate structure was a significant concession to industry interests as effective tax rate reduction from 20% to 10% was below WHO recommendations. Therefore, health effects likely will be smaller. The lower marginal rate on concentrates was a further concession to industry in the midst of the obesity and NCDs crisis. Commitment of revenue to health promotion was important.

Discussion
The Chairperson said the Committee was impressed by the quality of academic input into the HPL discussions. However, there was also the need to find a balance between health concerns and unintended consequences from the policy, such as job losses.

Mr A Lees (DA) added that the crux was to convince the Committee that the tax would have the desired effect. The need for a tax was indisputable.

Ms P Kekana (ANC) agreed with the Chairperson on the need to look at the unintended consequences of the levy on ordinary people, especially the workers.

Dr W James (DA) said the health case for the levy was solid. The issue was whether the levy would have the desired behavioural consequences, and if there was empirical rather than desktop evidence to give credence to this. He added that Treasury would have to consider ring-fencing the levy for research involving real-time analysis of the impact and feasibility of the levy for the next five to ten years.

Healthy Living Alliance (HEALA) submission
Dr Sundeep Ruder, Endocrinologist at Life FourWays Hospital, invited the Committee to look up a Daily Maverick article (The Sugar Shysters: A day in the life of a South African endocrinologist) that dissected the plight of patients on the ground due to consumption of sugary beverages. Non-communicable diseases have an adverse impact on jobs; productivity plummets and disability was on the rise because of complications due to these diseases. A lot has been said about job losses but little has been said about the health impact of the beverages.

He lamented that people suffer from the negative, harmful effects of sugar laden food-like products daily. People have been hoodwinked through mass advertising and false cause and effect associations, played to desire rather than purpose and thus kept enslaved with limited choice through manipulation. Patients did not know the truth about these products they ingest and were thus at the mercy of the diseases that come with their consumption. The cost of inaction was huge. These lifestyle diseases are the leading cause of death worldwide, resulting in 16 million premature deaths each year. The World Health Organization (WHO) predicts that NCDs will account for 73% of deaths and 60% of the disease burden by the year 2020, mainly in low and middle-income countries. Poor diet now generates more disease than physical inactivity, alcohol and smoking combined. Obesity is associated with several NCDs including diabetes, heart disease, stroke, high blood pressure, joint pain and certain cancers. These NCDs now account for a staggering 43% of recorded deaths in South Africa. Improving diets to reduce NCDs requires a sustained public health effort that addresses environmental factors and the conditions in which people live and make choices. Sugary drinks are strongly associated with weight gain in both children and adults and have little nutritional value. The consumption of sugary foods and drinks is the primary cause of tooth decay, and 55% of six year-olds in South Africa suffer untreated tooth decay. Drinking one sugary beverage per day increases adult likelihood of being overweight by 27% and child likelihood by 55%. For every additional 150 sugar calories available for consumption, there was an eleven-fold increase in the prevalence of type-2 diabetes in the population. This is compared with 150 calories from another source such as fat or protein and independent of body mass index (BMI) and physical activity levels. Sugary drinks are the top calorie source in teens’ diets. From 1989 to 2008, calories consumed in the form of sugary beverages increased by 60% in children of age six to 11, and the percentage of children consuming them rose from 79% to 91%. Reducing intake of soft drinks is associated with less weight gain and metabolic improvement. Therefore policymakers needed to look at the science to predict the future.

Dr Ruder said the levy was a “mass prescription” for the nation. With better health, the country could pursue individual and collective goals, ensuring the country's prosperity. He welcomed and commended government on its proposal for the implementation of the sugary drinks tax and strongly advocated for this. Stakeholders still had work to do, but the levy was a good start. The implementation of the sugar tax was a step in the right direction. It is policy that would not only help people change behaviour, but it is policy that can help change pathophysiology. It is a macrocosmic policy intervention that will have impact on the microcosmic physiological level thus improving the health of individuals and the population at large. Evidence from other countries has shown that the implementation of a sugar tax leads to behaviour modification and reduced consumption of sugary beverages resulting in a decline in obesity and diabetes rates.

He reminded the Committee that the substantial decline in tobacco consumption in the past two decades, which was the single most important factor driving a decrease in cardiovascular mortality during that period, only happened after legislative measures targeted the affordability, availability, and acceptability of smoking.

He concluded that revenue generated should be put back into the health care sector to fund poorly resourced hospitals. Revenue can also be used to fund public health interventions aimed at prevention of NCDs. With behavioural changes enforced by policy and provision of correct information on the adverse impact of sugary beverages, South Africans could work to find their footing again in this turbulent landscape.

National Council Against Smoking (NCAS) submission
Dr Yussuf Saloojee, National Council Against Smoking executive director, identified the urgency of implementing the levy in an effort to reduce consumption of sugary beverages. Eating foods high in sugar causes weight gain and almost 40% of adults are overweight or obese. The McKinsey Global Institute estimates that global economic impact from obesity is about $2 trillion or 2.8% of global GDP. Tax should be high as possible and the NCAS suggested that the tax rate be set at 3.5 cents per gram of sugar and all sugar containing drinks be taxed at the same rate. A higher tax rate would be more effective and there was no rationale for exemptions. The goal should be to reduce the number of people who are obese by 10% by 2020, with further targets set thereafter as per Department of Health’s strategic plan for NCDs. This would establish a clear criterion for measuring progress, ensure transparency and provide certainty to industry.

He pointed out that industry opposition to the levy was synonymous to resistance by the tobacco industry over the last 50 years in the backdrop of sterner regulations. Industry was in the habit of misusing economics. He referred to an article by the tobacco industry published at a time the Tobacco Bill was in Parliament. Tobacco industry warned that 174 000 jobs would be lost. On the contrary, a recent study noted restrictions on tobacco may create more jobs. In the same vein, the sugar industry has worked hard over the past years to ensure the blame for NCDs does not fall on their products. However, excise taxes on harmful products are a ‘win, win, win for governments’. They are the most effective method to reduce consumption, to increase government revenue, as well as raising funds that could be used to promote health or replace a public harm with a public benefit.

South African Pediatric Association (SAPA) submission
The South African Paediatric Association applauded Treasury’s introduction of a policy to tax sugar sweetened beverages. The Government has a duty of care for children and to promote the attainment of optimal health, and the sugary drink tax will assist in achieving this. SAPA believed that the policy can be strengthened to make it even more effective.

Paediatricians around the country were currently struggling to manage the increasing burden of obesity, dental caries and type 2 diabetes in South Africa’s children. The contribution of sugar in food (and of added sugar, particularly in beverages) in increasing the incidence of these diseases, was well recognised. The impact is highest in poorer children. A 2007 study of children aged 12 to 24 months in urban South African communities found that carbonated drinks were one of the most consumed drinks/foods among these very young children. Consumption increases with age, peaking with adolescents. Although SAPA had no representative data on how much sugar-sweetened drink South African children consume, global studies confirm that children are the largest consumers of sugary drinks. Thus, the proposed tax would benefit children the most.

SAPA urged government to be steadfast in the face of opposition to the levy from those with commercial interests. It implored Treasury and SARS to design and legislate the strongest possible policy. SAPA supported the call to:
• Institute a higher (20%) tax rate: Studies suggest that a 20% price increase of sugar sweetened beverages is required to have a significant impact on purchases, consumption, and ultimately on obesity and population health
• Tax all the sugar in all sugary drinks, and do not offer exemption for the first 4g of sugar per 100ml. There is no evidence that the benefits of this step in incentivising manufacturers to reduce the sugar content of some drinks, exceeds the disadvantage of leaving “less sugary” drinks untaxed. Allowing this exemption will threaten health promotion efforts favouring consumption of zero-sugar beverages (best of which is water)
• Increase the tax rate of concentrates to the same rate as ready-to-drink products. Failure to do this promotes a switch to cheap sugary concentrates (such as squashes or syrups) which defeats the entire objective of this policy (which is to reduce intake of all drinkable sugars).
• Tax all drinks with added sugar: Fruit juices and dairy-based drinks with naturally-derived caloric sweetener (in whatever form, including high-fructose corn syrup and fruit juice concentrates) may contain equal or higher levels of sugar than carbonated soft drinks. The sugar contained in sweeteners have similar metabolic effects and is as harmful as any other sugar, and there is no logical reason not to tax them similarly.
• Reserve revenue from the sugary drinks tax to promote health: Treasury needs to ensure that revenue from this tax is directed at supporting health promotion efforts. For children, this would include promoting breastfeeding in early life, supporting good complementary feeding habits, promoting reduced consumption of sugar-loaded foods generally, and investments in broader child health and well-being activities such as early childhood development.

The South African government must put the health of South Africa’s children before special interests who target children with their unhealthy products. SAPA pledged its support for Treasury’s efforts and was committed to supporting the promulgation of this policy.

Discussion
Ms Kekana felt there was little engagement with people on the ground by Treasury about the health promotion levy. The thrust of the debate was academic. She appealed to the Department of Health to look beyond sugars in beverages but in other forms of food such as chocolates, cakes as well. Treasury had its revenue needs but targets should not be achieved at the expense of ordinary people who could lose jobs in the sugar industry. She made reference to African Growth and Opportunity Act (AGOA) provisions, which led to job losses recently. As it stood, the sugar industry was threatening to relocate to neighbouring countries such as Swaziland, where sugar is cheaper.

Mr D Hanekom (ANC) said the bottom-line was that government needs to put in place measures to reduce sugar intake as a matter of urgency, as the evidence was compelling. It was also a no-brainer that a tax would reduce consumption. However, in the event of reduced consumption, what effect would it have on the industry? Those were the real concerns that had to be explored in an effort to mitigate the possible unintended consequences. He asked Treasury if there was a possibility of applying the levy to mitigating the consequences.

Mr S Matiase (EFF) said the consequences of government failure to step up the fight against high sugar-content foods and beverages were glaring. The Democratic Alliance and African National Congress Members had to make their stand on the levy clear: whether they were on the side of the poor who consume the ‘toxic substances’ on a daily basis. There was no point in having discussions with parties that, at the same time, were defenders of multinationals and their businesses. He suggested an increase in the proposed tax rate to minimize sugars in foodstuffs. Regulations must be tightened and enforced, and Members should do away with conflicted interests.

Mr A Shaik Emam (NFP) said the submissions by health experts spoke volumes about challenges facing the country. He expressed disappointment in government’s inability to regulate an industry whose only interest was maximum profits. “They have been drinking the blood of the poorest.” The reason for the tax was that people were suffering and dying. That businesses would close down was a false alarm; it will not happen. Industry should be prepared to innovate towards the reduction of sugar content. It should be prepared to use some of its revenue to educate the populace on the harmful effects of sugary beverages. NFP believed there should be no reduction and exemption as suggested by the revised proposal by Treasury. The Committee had to understand the gravity of the suffering that people were enduring due to diseases brought on by sugary beverages. Health should take precedence over profits.

Mr A Mahlalela (ANC) commented that some sectors felt the levy had not been adequately canvassed through the NEDLAC process. Treasury had not expressed the positions taken by the NEDLAC discussants. He asked how Treasury had concluded the process. To what extent will the revenue be used to promote healthy lifestyles? Raising funds should not be the main intended purpose. If promoting health was the primary goal, what was the purpose of reducing the proposed tax rate? Studies show that the impact can only be realized above a tax rate of 20%.

Ms C Ndaba (ANC) asked Treasury and Department of Health why other forms of sugary beverages such as fruit juices and cordials were exempted. If the Committee was serious about dealing with sugary substances it should also consider all food and beverages with sugar, such as sauces.

Ms B Mabe (ANC) said research on the link between sugary beverages and obesity was incomplete. Tere were other products that bring about obesity and therefore a holistic approach was needed. She identified the need to increase the scope and include other products. There was a need to strike a balance between health and business as both were important.

Dr Stacey, Priceless SA, replied that the notion that research on the link between sugary beverages and obesity was incomplete was inaccurate. There is extensive evidence from experimental and observational studies strongly linking liquid sugar to the onset of diabetes and obesity. He agreed other substances were also to blame but the link with liquid sugar was pronounced and it would make sense to have it as a starting point. He believed the challenges facing emerging sugarcane farmers should be confronted directly rather than targeting a levy that would have an indirect effect. The tax would benefit society on a broad scale. Liquid sugars in particular should be the starting point. Not implementing a levy on the pretext of protecting emerging cane growers would perversely be lending support to big business. He noted that saying a tax at less than 20% would not have any impact, was being shortsighted. Studies in Mexico show that a 10% tax led to a 12% reduction in consumption in the first year of policy implementation.

Dr Molete, Wits School of Oral Health, agreed the poor had limited dietary choices. She recounted that the School of Oral Health had put in money in an effort to reduce dental decay among children, to no avail. She strongly believed that for a start, the levy would create an environment where healthier choices would be easier to make. Poor school children were mostly affected by sugary beverages.

Dr Saloojee, National Council Against Smoking, indicated that mitigating strategies could involve providing alternative livelihoods to sugarcane farmers who could be affected by the job losses. The reality was that multinationals benefited immensely at the expense of ordinary workers.

Dr Ruder replied that anyone who felt the science linking liquid sugar with the onset of obesity and diabetes was incomplete, was ‘fooling themselves’. The evidence was beyond compelling. To weigh the lives of children affected by sugary beverages and industry job losses did not make any ethical sense.

Ms M Dunjwa (ANC) commented that health challenges cut across the political divide. She felt Dr Ruder’s comment that some Members were ‘fooling themselves’ was inappropriate. Experts should acknowledge that Members express concerns from a wide-range of ordinary people on the ground.

The Chairperson said Dr Ruder’s comment could have been an unfortunate choice of words. However, Members should encourage the public to express views freely. Given the nature of the subject, a robust exchange was unavoidable. Replying to Mr Mahlalela, he indicated the Finance Portfolio Committee was advised that the NEDLAC process was moving at a slow pace and its desire was for the process to be expedited. However, the Committee would check its progress before voting on the Bill.

Congress of South African Trade Unions (COSATU) submission
Mr Matthew Parks, COSATU Parliamentary Coordinator, stressed that COSATU was not a homogeneous organisation, thus it had a mix of views. He emphasised the need for alternative jobs to cater for job losses as an unintended consequence of the levy. COSATU’s desire was not to collapse government’s efforts.
Ring-fencing the levy for sugar transition to support government’s health objectives and to mitigate unintended consequences would be the way to go. There were wide-ranging job loss estimates across the spectrum. Treasury’s estimate was 5 000, whereas industry estimates range from 5 817 to 17 000 to 72 000 on farms, transport, mills and factories. 3 000 to 20 000 emerging farmers were at risk as well. COSATU was deeply disappointed by government and its ally, the ANC, due to the abandonment of the manifesto on job targets, lack of government jobs plan and alternative jobs for the sugar sector. Also, agriculture was a key backbone of the economy and tampering with fruit juice could destroy fruit farms in areas such as Limpopo and the Western Cape.

He pointed out the need for further engagements at NEDLAC on over-taxation and water hikes, wasteful expenditure, corruption and priorities, and ring-fencing the levy for sugar transition and later health promotion. Further concerns were lack of sector transition plans, the rush by Treasury for a 2017 implementation, without any comprehensive socio-economic impact analysis (SEIAS), the absence of the Departments of Trade and Industry, Agriculture, Forestry and Fisheries and Economic Development in the discussion, and insufficient engagement with the sector.

COSATU proposed the way forward as follows:
• Facilitation of further meaningful engagement at Parliament and NEDLAC,
• Collective government SEIAS;
• Delay 2017 levy implementation; and inclusive win-win plan with transitional support, realistic time frames;
• Sugar and related products import tariffs;
• Support for sugar exports;
• Support for emerging sugarcane farmers;
• Crop transition or diversification support; bio fuel & cogeneration formalisation;
• HPL ring-fencing for transition and healthcare;
• No retrenchments;
• Job creation;
• Industry sugar content reduction;
• Public and school education; and
• Industry healthier drinks plan.

Business Unity South Africa (BUSA) submission
Ms Helen Ndlovu, BUSA Economic & Trade Policy Standing Committee representative, submitted that engagements on the levy were unsatisfactory. During the first engagement of the NEDLAC task team on 3 April 2017, social partners agreed to engage on the SEIAS informing the proposed policy, but no SEIAS had been commissioned. A completed SEIAS was a prerequisite by Cabinet on all major changes to government policy and legislation. The lack of a SEIAS was problematic as the proposed levy would have significant and deleterious effects on the economy and employment with little, if any, health benefits.

Business supports the health objectives, but the objectives should be realised in a manner that counteracts the likely negative effects. Many leading studies conclude that the optimal means to combat obesity include portion control, reformulation, weight-management programmes, education, and availability of healthy alternatives among others. Per capita sugar consumption has steadily been declining in the last 10-15 years and consumption of added sugar in the form of liquid products is 3-4% of the daily energy intake of the average South African. The proposed tax would only achieve a 0.24 – 0.32% reduction in energy intake. It was therefore unlikely that the levy on its own would have any noticeable impact on health outcomes.

The proposed levy will impact on the agricultural sector, specifically sugar growers. This undermines government’s efforts with regards to agriculture, rural development, and transformation and land reform policies. Agriculture provides much-needed employment in rural areas where few other options exist – particularly for unskilled / semi-skilled workers. The most vulnerable therefore stand to be affected. BUSA estimated that between 18-24 000 jobs could be lost in all sectors. Treasury estimates a loss of 5-7 000 jobs but does not include the informal sector. Even these modest estimates of job losses were unacceptable in the current economic climate.

Ms Ndlovu said business supports the underlying health objectives outlined in the Department of Health’s Strategy for the Prevention and Control of Obesity 2015-2020 and seeks to play a meaningful role in supporting these objectives. However, the proposed levy on sugary beverages – in the absence of mitigation strategies to ameliorate the negative socio-economic impact – would result in sub-optimal health outcomes and significant economic and job losses. Alternate solutions to a levy could involve industry partnering with government and labour in order to tackle the health issue more effectively and business was willing to be bound to measurable consumption and economic commitments. Industry could play a more meaningful role, alongside other stakeholders, in addressing the increasing trend in obesity and the Healthy Food Options (HFO) Forum has already created a partnership platform in this regard.

BUSA believed it was imperative for the NEDLAC process to be given sufficient time to co-develop appropriate strategies to bring about the desired health outcomes whilst addressing the considerable socio-economic challenges that will arise from the proposed levy. Business urged the Committee to remove the Health Promotion Levy on Sugary Beverages from the Draft Rates Bill, pending the finalisation of the existing NEDLAC process and the co-development of mitigation strategies that are supported by government, business and labour.

South African Sugar Association (SASA) submission
Mr Suresh Naidoo, SASA Vice-Chairman, pointed out that the South African sugar industry is an important contributor to the economy, with total average industry income of R14 billion per annum. However, it was an industry under siege. Sugar industry was fighting for its survival on the back of the worst drought in history, rising input costs, inadequate tariff protection – pushing the industry to the edge of sustainability.

SASA was concerned about the increase in obesity and non-communicable diseases (NCDs) in South Africa and committed to working with government to address this. SASA had a longstanding commitment in promoting healthy lifestyles and the prevention of NCDs, but the South African sugar industry does not support the proposed tax on sugar sweetened beverages (SSBs) and Health Promotion Levy on Sugary Beverages. At the proposed level of tax on SSBs the impact on the total energy intake is about 12 kcal/capita/day or 0.4% of energy intake. Therefore, the singling out of an individual ingredient in a particular product as the tax aims to do, is unlikely to achieve the desired health outcomes, which requires a multi-disciplinary approach.

The tax would negatively impact both the sugar milling and sugarcane agricultural sectors. Loss in revenue and reduction in sugar consumption would result in a shrinkage of the industry. Potential of sugarcane agricultural land going out of production and the consequent jobs losses are in contradiction to the National Development Plan and Nine Point Plan. The future level of the levy or tax is open to adjustment (increase) by the Minister of Finance, meaning the eventual economic and job impact is unknown and can be severe over time. Also, insufficient consideration has been given to the full impact of the imposition of the tax, and the significant negative unintended industrial, socio-economic and agricultural consequences.

Mr Naidoo recommended that the proposed levy on sugary beverages be withdrawn in its entirety from the parliamentary process to allow all stakeholders sufficient time to consider the adverse implications of the levy, alternatives and pro-active mitigation. Meaningful engagement must take place between National Treasury and the sugar industry. The NEDLAC process should be allowed sufficient time to be properly concluded. SASA, through BUSA, is participating in the NEDLAC SSB Tax task team process and was putting forward policy interventions that could promote the sustainability and growth of the South African sugar industry. Government should consider the recommendations raised by the sugar industry and going forward through NEDLAC.

Also, a Socio Economic Impact Assessment Study (SEIAS) of the National Strategy for Prevention and Control of Obesity and Health Promotion Levy must be conducted and shared by government. The singling out of an individual ingredient as a measure to reduce obesity was unlikely to resolve a complex health condition and requires a multi-disciplinary approach.

Etsweletse Trading Solutions submission
Mr Thapelo Magwete, Director: Etsweletse Trading Solutions, said his company was a 100% black-owned, non-alcoholic beverage manufacturer currently producing still bottled water, energy drinks and juice under the brand name Velvet Beverages.Since its inception in 2012, its employee base had grown and now boasts nine youths. Emerging micro-enterprises are key in economic development and sustainability; however they face a number of barriers to market including finance and logistics. The lifeline of emerging micro-enterprises is the ability to sell products well below market prices to be affordable to the lower LSM (Living Standards Measure) they serve. With the introduction of the levy, emerging micro-enterprises would no longer be able to compete as products of established and dominant players will always be bought irrespective of price adjustments, largely due to vicious marketing drives. The proposed levy initiative would marginalise small players and hand over the lost market to big brands. Obesity and NCDs was a concern to emerging enterprises but the belief was that there are other alternatives that need to be looked into, that will not put small players out of business.
 
Mr Magwete lamented a flawed consultation process. Small players had no knowledge of the levy as nobody approached them about the proposed tax; government consulted big business. This conduct maintains the marginalisation of small black businesses in important matters that affect industry and the country.

He said that the levy would undermine government’s program of developing black industrialists in that emerging black producers in the industry would inevitably have to close shop owing to the anti-competitive nature of the levy. Effectively, the levy will create an addition artificial barrier to entry, resulting in a monopolistic industry with big major players able to absorb the cost while the smaller players are unable to do so. The implementation of the levy would not only have an impact on his business but on those of suppliers too: PET bottle blowers, who are mostly young black emerging businesses, concentrate manufacturers, label printing, plastic packaging companies and the glass manufacturing industry.

Tiger Brands submission
Ms Mary-Jane Morifi, Corporate Affairs Executive: Tiger Brands, spoke about the inequitable treatment of concentrates if the proposed health promotion levy was applied as is. After the last parliamentary hearing, a separate levy for concentrates was proposed which was half of that of a ready-to-drink beverage (RTD), thus 1.05c per gram of sugar per 100 ml of concentrated beverage compared to 2.1c per gram of sugar per 100 ml. Although this acknowledged that concentrates needed to be addressed differently, it still results in the inequitable treatment of concentrates compared to RTD beverages. This was due to the following reasons:
• The application of a single rate to all concentrates did not take into consideration the different dilution ratios of concentrated beverages (such as 1:3 or 1:5). If the rate of 1.05c per gram of sugar was applied to the sugar content of the undiluted product, it will result in a higher sugar levy per 100 ml diluted product than the sugar levy of an equivalent RTD product.
• Concentrates with a sugar content at or below 4g per 100ml diluted would not be tax exempt if the 1.05c sugar levy was applied to the sugar content of the concentrated beverage. RTD beverages would be able to apply the 4g threshold and be incentivised to reduce the sugar content but there would be no such incentive for concentrates.

Tiger Brands proposed that the rate of the sugar levy on concentrates be the same as that of RTD beverages but taxed on the sugar content of the diluted concentrate to ensure equitable treatment between a concentrate and RTD beverage.

The proposed definition of sugar content includes ‘intrinsic sugar’ and other ‘sweetening matter’. Nectar and squash products are legally, in terms of the Agricultural Products Standards Act, required to have a minimum amount of fruit juice: 6% for squashes and variable for nectars depending on the type of fruit. The ‘intrinsic sugar’ content of a beverage should not be subject to the sugar levy, only ‘added sugar’ should be taxed.

Discussion
Mr B Topham (DA) noted that job losses could be in the agricultural sector in particular. He implored the Committee and stakeholders to look into measures such as an import tariffs to protect sugar growers by compensating them for the decrease in production. Also, Tiger Brand’s argument on taxing concentrates upon dilution seemed fair but could be difficult to implement. He asked if Treasury had thought about the process of how the tax would be collected. He agreed that other sugary products might need to be taxed but the levy was a starting point.

Ms Kekana asked if Treasury considered Tiger Brands’ argument correct. She asked the sugar industry to come up with viable and robust measures to assist government in mitigating the unintended consequences. She supported COSATU’s multipronged approach of considering other avenues such as biofuel, to compensate a dip in demand, for sugarcane growers.

Mr Malahlela asked if COSATU was equating the ‘poisoning of people’ by sugary beverages to a possible 1 000 job losses due to the levy. Did that make sense? If that was what COSATU implied, then the country has a big problem. He pointed out that big sugarcane industries were in the most poverty stricken areas of Mpumalanga. They have been doing business but ordinary peoples’ lives were not improving. There was no beneficiation at all; exploitation was blatant. He agreed that there was need to look into demand diversification of the sugarcane crop, such as towards biofuel. StatsSA recently released a report detailing the impact of non-communicable diseases in the country. There was thus need for the Committee to be objective rather than protecting narrow interests. It was a serious problem confronting the nation and society had to be progressive in bringing ideas to address the challenge.

Ms Dunjwa emphasised that the levy was being motivated by the reality of lives being lost owing to non-communicable diseases. The Committee was not insensitive to possible job losses.

Mr Hanekom said figures on sugary beverages consumption per capita were instructive. Obesity and diabetes are a real and growing problem. Government does not stop trying to reduce road accidents because tow truck drivers will lose their jobs, so why are job losses the main focus of the sugary drinks tax? Directing his comment to COSATU, he said potential job losses could not be taken lightly. However, certain things had to be done to mitigate these.

Mr Maesela (ANC) said stakeholders had to do the right thing: saving people’s lives. Life was more important than profit. Defending a healthy society was paramount.

Dr Dumisani Jantjies, Parliamentary Budget Office, said it had to be appreciated that for every introduced policy, there would be winners and losers. Potential losers ought to be creative in the midst of competing interests.

Mr Parks replied that COSATU acknowledged the gravity of sugary beverages on health. There was no disagreement that the health concerns were valid. COSATU was of the view that it was not a choice between health and employment; both objectives can be realised concurrently. Hence the idea of a transition and a jobs plan for a win-win situation. COSATU believed there could be winners without losers. Marrying the two objectives was the crux of a viable policy.

Ms Morifi, Tiger Brands, said product labelling and awareness campaigns enabled consumers to know about the recommended dilution ratio for concentrates. The control and power rested with the consumer.
 
Mr Naidoo, SASA, replied that agriculture had not quantified the exact number of potential job losses. The position was that the introduction of a levy would have an impact on the direct job opportunities offered by the industry. Job losses should not be looked at in isolation; the socio-economic impact of the levy had to be considered as well. On an import tariff required to compensate the loss from tax, he said SASA had submitted its proposals to AITEC, and transitional and mitigation mechanisms should be implemented in parallel with the levy. He added that SASA worked closely with the Department of Health, providing the latter with nutritional information and the relationship of diabetes with sugar consumption.
 
Ms Ndlovu, BUSA, replied that industry was committed to devising mitigating strategies and has been doing so through the NEDLAC process even before the levy was mooted.

Mr Ismail Momoniat, Head of Tax and Financial Sector Policy, National Treasury, said the Committee needed to differentiate between the science and what had to be done. Those in disagreement with the science had to engage with academic journals. He made it clear that the Department of Health was not saying sugary beverages were the only path to obesity. However, it would be irresponsible for government to wait for perfect conditions. Sugary drinks had a big impact and a levy was the first step. Government may have an incremental policy later.

Treasury expected opposition from business after every tax proposal. Treasury had reviewed the policy downwards significantly to a point that Department of Health felt Treasury was ‘selling out’. Treasury makes strong suggestions on health spending. The most significant impact of the levy was probably downstream; with farmers it could be pretty small. He added that, contrary to popular belief, the NEDLAC process was not going smoothly; there were reasonable timelines but certain stakeholders had an incentive to delay the process.

Ms Lynn Moeng-Mahlangu, Chief Director: Nutrition, Health Promotion and Oral Health, Department of Health refuted SASA’s claims of working closely with the Department of Health in educating the population on the risks of excess sugar consumption. She spoke of pamphlets distributed by SASA in some clinics, where sugar was being encouraged for diabetic patients. That was problematic. DoH acknowledged the effect of other lifestyle choices on NCDs but evidence pointed out the biggest contributor was liquid sugar. DoH was competing with industry in educating the public, against industry’s billions in advertising expenditure. The main discussion should be around mitigating the unintended consequences.

The Chairperson, in closing, directed Treasury to see to it that the NEDLAC process was expedited. The Standing Committee on Finance would not wait for the conclusion of the process.
 
The meeting was adjourned.

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