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

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Finance Standing Committee

06 June 2017
Chairperson: Mr Y Carrim (ANC) and Ms L Dunjwa (ANC)
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Meeting Summary

The Committee held its fourth day of public hearings on the Sugary Beverages Tax.

Before the submissions were heard, National Treasury stated that extensive consultations were conducted by it and evidence to that effect could be furnished. Changes had been made to the Rates Bill after these extensive consultations. Design changes based on these comments were:
• Introduction of a threshold, the first 4g/100ml is exempt (only sugar content above 4g/100ml will be taxable)
• Rate was lowered slightly from 2.29c/g to 2.1c/g
The levy would be effective on the date of promulgation of the Rates Bill.

The Committee Chairperson commented that it was overwhelmingly obvious that excess sugar consumption has severe effects on health. The ground was substantially covered by compelling academic and scientific arguments. The Committee, ultimately, had to find a balance between having a Health Promotion Levy (HPL), bearing in mind unemployment challenges; the need to facilitate the growth of emerging sugarcane farmers and various concerns by other constituencies. The levy was for health promotion, not for punitive reasons. The levy would influence consumer behaviour by reducing sugary beverages consumption, thus reducing demand for sugar. Therefore the challenge was how to address unintended consequences such as job losses. Stakeholders had therefore to look at alternative employment channels for those who might lose jobs.

The Association for Dietetics in South Africa (ADSA) supported the proposed levy on the basis of a considerable body of evidence that high intake of free and added sugars increases overall energy intake and consequently the risk of becoming overweight and obese. ADSA suggested that the tax rate for concentrates be increased to align with the rate for ready-to-drink sugar sweetened beverages (SSBs). To achieve its objective of improving health, the levy must encourage people to consume beverages that are lower in sugar - instead of switching to cheap sugary concentrates. ADSA emphasised that the revenue generated from the levy should be used to fund further interventions to support the implementation of the National Department of Health’s Strategy for Prevention and Control of Obesity in South Africa.

South African NCD Alliance (SANCDA) said the indirect taxation of sugary drinks with the aim of reducing their consumption, as an important evidence-based public health measure, was fully supported. The levy stood to benefit public health and society as there was evidence in literature documenting the direct link between the consumption of sugary drinks and risk of developing obesity, some types of cancers, diabetes, and cardiovascular disease. SANCDA recommended the implementation of levy as part of a policy package of broader measures such as marketing restrictions on unhealthy foods and beverages to children and adolescents, effective front-of-pack labelling to prevent obesity and diet-related non-communicable diseases (NCDs), and food and agricultural subsides.

Society for Endocrinology, Metabolism and Diabetes of South Africa (SEMDSA) rejected the notion that health must be traded-off against the threat of job losses. It believed the levy should be kept at 20% as an expression of commitment to putting people’s health first before stakeholder-specific interests.

Consumer Goods Council of South Africa (CGCSA) said they supported the Department of Health’s National Strategy for Prevention and Control of Obesity as well as the Strategic Plan for the Prevention and Control of NCDs. On the other hand, they were aware of the increased financial burden on South African consumers created by additional fees and taxes levied by different government departments. CGSA recommended a clearly stated goal to reduce obesity that would entail understanding its origins and progress as a disease in communities– not just the treating of its effects. A combined plan of action, coordinating the multiple actions currently in progress in government, industry and the health sector was proposed. CGSA urged stakeholders to ‘stop trying to find short-cuts to short-term, ineffective solutions’. Obesity is a health issue and had to be addressed as such.

South African Cane Growers Association (SACGA) submitted that small-scale growers would be significantly affected by the decision to implement the levy. In many instances, the small-scale growers operate on marginal soils and at a considerable distance from the mills. Based on the industry average of about 60 tons cane/ha, more than 13 500 hectares (90 000 tons of sugar) were at risk. 1 795 permanent and 2 835 seasonal jobs could be affected, and estimates did not take into account the knock-on effects in terms of number of people in a household, access to social welfare, home industries that relied on workers as well as small business. SACGA emphasised that insufficient consideration had been given to the full impact of the imposition of the levy. The basis for the tax rate of 2.1c/gram of sugar above 4g/100ml had not been specified and the scientific reasoning for legislation of this nature should be made available for public scrutiny, as the levy was intended to effect health outcomes. SACGA was committed to promoting diversification of income streams. However, diversification was not always viable on small units and could not replace the income earned from sugarcane.

Tongaat Hulett disputed arguments brought forward by proponents of the levy. Tongaat Hulett believed vilifying sugar was not right as sugar had no particular role in bringing about obesity; tax on sugars was therefore low impact. The sugar industry was important to South Africa as approximately one million South Africans depend on the sugar industry for their livelihood. Tongaat Hulett expressed concern that the Health Promotion Levy was uncapped and increases would be unfettered as the Rates and Monetary Amounts and Amendment Bill was revised annually. Treasury had ignored the concerns and recommendations put forward by the sugar industry, and to date no direct consultations had taken place between the two. The levy would hurt the vulnerable, the small scale and new emerging, communal and land reform farmers. The loss of revenue will squeeze already tight margins, resulting in job losses and risking reversal of major developmental gains. Tongaat Hulett recommended the removal of the Health Promotion Levy on Sugary Beverages from the Rates Bill, pending finalisation of the existing NEDLAC process and co-development of mitigation strategies that are supported by government, business and labour.

Beverage Association of South Africa (BevSA) did not think a sustainable solution could be found through the Health Promotion Levy, which could have unintended detrimental effects on the economy and job creation efforts. The levy was aimed at reducing the rate of obesity and non-communicable diseases, however, in its current form the levy was misplaced in the Rates and Monetary Amounts and Amendments of Revenue Bill. The levy should be considered as a new tax and should follow the appropriate administrative procedure where all social partners are afforded adequate time to consult and engage on the matter. The levy takes a narrow view of the socio economic impact it would have on the broader value-chain. Assuming that the revenue is used for deficit reduction and not reinvestment, as was the case with other taxes that are not reinvested in a specific sector, the proposed levy would reduce GDP by R1.85 billion, with unavoidable job losses. The largest loss is expected to be experienced in the informal sector where an anticipated 4000-6000 closures of informal outlets is foreseen. The total job losses across the industry and value chain would number around 24 000 jobs and not the 5 000 suggested by proponents of the levy. BevSA was committed to creating an enabling environment for healthier choices. Interventions identified include: partnering with government on promotion of healthy lifestyle through initiatives such as the Big Walk, park gyms; sugar reduction (reformulation), smaller packs, marketing of diet, no-sugar options and no marketing to children as well as working with the Department of Health on new labelling regulations. BevSA recently launched a healthy lifestyle booklet with the Department of Social Development on healthy choices.

Coca-Cola Beverages South Africa (CCBSA) questioned the effectiveness of a levy aimed at singling out one food item in addressing a complex and challenging issue, at the risk of other critical socio-economic factors. Coca-Cola asked government to put in place an enabling regulatory framework and not punitive and regressive taxes. Coca-Cola suggested alternative measures to address health concerns from excess sugar consumption. Proposals included: regulating sugar amount in SSBs per 100ml, instituting external and independent monitoring, having a timeframe for execution and compliance, and introduction of a fiscal penalty for failure to comply. Benefits of the proposed regulatory framework were to: manage free riders (those players that are not part of the industry body); drive a collaborative, multi-stakeholder, multi-pronged solution that would bring about effective and sustainable health and economic solutions; deliver higher impact in addressing drivers of obesity as stipulated by health, without drastic impact on economic growth of beverage sector while sustaining employment.

Pioneer Foods recommended that the exclusion of unsweetened 100% fruit and vegetable juices be supported in contributing to health promotion in conjunction with other voluntary initiatives being undertaken. Pioneer Foods was already implementing voluntary health promotion initiatives such as product reformulation; package resizing; improved labelling and ingredient disclosures; and responsible marketing and advertising. Future reviews must be informed by scientifically evidence-based and comprehensive nutritional studies, international benchmarking, socio-economic impact assessment and consultations.

Meeting report

Mr Carrim, in his opening remarks, said it was overwhelmingly obvious that excess sugar consumption has severe effects on health. The ground was substantially covered by compelling academic and scientific arguments. The Committee, ultimately, had to find a balance between having a Health Promotion Levy (HPL), bearing in mind unemployment challenges; the need to facilitate the growth of emerging sugarcane farmers and various concerns by other constituencies.

National Treasury comments  
Mr Mpho Legote, Chief Director: Vat, Excise Duties and Subnational Taxes, National Treasury, said that revisions in the Rates Bill were made after extensive consultations. Treasury took all inputs into consideration to come up with the revised Rates and Monetary Amounts and Amendment of Revenue Law Bill.

Design changes based on comments were as follows:
Introduction of a threshold, the first 4g/100ml is exempt (i.e. only sugar content above 4g/100ml will be taxable)
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.

Association for Dietetics in South Africa (ADSA) submission 
Ms Jessica Byrne, CEO: Association for Dietetics in South Africa (ADSA) acknowledged that many South Africans are at a greater health risk due to the high consumption of free/added sugars, and ADSA was therefore in support of the proposed levy. There is a considerable body of evidence indicating that high intake of free and added sugars increases overall energy intake and consequently the risk of becoming overweight and obese. Obesity increases the risk of Non-Communicable Diseases (NCDs) such as high blood pressure, heart disease, diabetes and certain cancers. Intake of free sugars also increases the risk of developing dental caries, the most prevalent NCD globally. Treating and managing these prevalent conditions places a significant financial burden on the healthcare system in South Africa, adding to lost wages due to illnesses and disability, reduces work productivity, generates earlier retirement, and adversely affects people’s general well-being.

Sugar consumption through sugar sweetened beverages (SSBs) is increasing globally and South Africans are among the top 10 consumers of soft drinks in the world. Since 1998, the market for soft drinks in South Africa has more than doubled from 2.3 billion litres to 4.8 billion litres in 2012. Sugary drinks sales are growing by over 3% per year in South Africa. Many sugary drinks have no nutritional value, and these “empty” calories cannot be fairly compared to the nutritious calories of other foods. Emerging evidence indicates that food taxes have the potential to influence food purchasing and consumption. The levy may also drive manufacturers to reformulate and reduce the amount of sugar in their products. However, ADSA was concerned that the tax rate had been lowered from initial proposal, thus might not be sufficiently high enough to have a significant impact on purchasing behaviour. Evidence showed that a tax needs to be introduced at a sufficiently high level to have a meaningful impact on purchasing, consumption, and ultimately obesity and its consequences. A systematic review showed that a tax of 20% on SSBs could lead to a reduction in consumption of SSBs of around 20%. Further, the proposed tax design exempts a large portion of the sugar in sugary drinks- giving a “discount” on the first 4g of sugar per 100ml. There was no health justification for the exclusion and the discount reduces the health impact of the tax.

ADSA suggested that the tax rate for concentrates be increased to align with the rate for ready-to-drink SSBs. Ms Byrne pointed out that the current tax proposal includes a tax rate for concentrates (squashes or syrups) that was half the rate for ready-to-drink products, at 1.05 cents per gram of the sugar content that exceeds 4 g/100 ml. South Africans are drinking more and more concentrates than ever before; it is the fastest growing segment of the sugary drink market. To achieve its objective of improving health, the levy must encourage people to consume beverages that are lower in sugar- instead of switching to cheap sugary concentrates.

While a tax on SSBs had the potential to reduce the consumption of free/added sugars and improve obesity, a tax on SSBs must be viewed as only one piece of the puzzle to address the complex problem of obesity in South Africa. Obesity is a complex issue, and is driven by a number of factors in addition to excess intake of free/added sugars. Given the high consumption of added/free sugars by South Africans, ADSA would recommend a decrease in the consumption of all foods and beverages containing large amounts of added/free sugars. This highlights the need for supportive multiple sector interventions, such as a public education campaign, a code for responsible advertising and marketing of food by the food industry, and user-friendly food labelling, to be implemented in tandem with the levy, to address the importance of reducing free/added sugar intake from all sources in the diet, and teaching the public how to recognise foods and beverages high in free/added sugars. In conclusion, ADSA emphasised that the revenue generated from the levy should be used to fund further interventions to support the implementation of the National Department of Health’s Strategy for the Prevention and Control of Obesity in South Africa, so as to strengthen the effectiveness of the levy.

South African Non-Communicable Diseases Alliance (SANCDA) submission 
Ms Razana Allie, Diabetes Nurse Specialist: South African NCD Alliance (SANCDA) said SANCDA supports the proposed levy in full. The indirect taxation on sugary drinks with the aim of reducing their consumption as an important evidence-based public health measure was fully supported. The levy stood to benefit public health and society as there was evidence in literature documenting the direct link between the consumption of sugary drinks and risk of developing obesity, some types of cancers, diabetes, and cardiovascular disease. Therefore, it presents a compelling case for a reduction in the consumption of SSBs.

Ms Allie pointed out that NCDs are the leading cause of death in South Africa. They cause suffering, disability and death. Every amputated leg, loss of sight or death of a person with diabetes, cardiovascular disease or diet-related cancers costs families, communities, and societies greatly and often in ways that were hard to measure. Catastrophic costs for families are incurred during these and other health related events, trapping families in poverty and reliance on the State. Therefore the levy stood to protect society and benefit children and adolescents. According to the World Health Organisation (WHO), low income consumers and young people get the greatest health benefits from taxes.

In recent years, various countries have introduced taxes on food products such as sugary drinks as a public health measure to combat obesity. Taxes have traditionally been implemented as a means of revenue generation; however, taxes on tobacco, alcohol, and sugary drinks illustrate the utility of taxation as a tool in health policy to reduce consumption and one that has the potential to provide tax revenue for NCD prevention and control. The HPL was being levied by government in the best interests of the citizens. SANCDA considered it imperative that a proportion of the levy be allocated to the implementation, monitoring and evaluation of comprehensive policies and programmes that support the prevention and control of NCDs.
 
In conclusion, SANCDA recommended the implementation of levy as part of a policy package of broader measures such as marketing restrictions on unhealthy food and beverages to children and adolescents, effective front-of-pack labelling to prevent obesity and diet-related NCDs, and food and agricultural subsides.

Society for Endocrinology, Metabolism and Diabetes of South Africa (SEMDSA) submission
Dr Ankia Coetzee, Specialist Physician at Tygerberg Academic Hospital, said the submission was building on the concerns raised during a previous hearing. Numerous well-designed studies have unequivocally shown dramatic increases in SSB consumption in both urban and rural areas. Owing to this increase, prevalence of diabetes stood at 7-9.8% in adults, with one in four pregnant women hypoglycaemic; this was just a tip of the iceberg.
Industry was not being supportive in the fight against NCDs. He spoke of the US beverage industry spending $100 million from 2009-2014 to sway political and public opinion away from initiatives to curb sugar consumption through taxes. Also, leaked emails revealed intentions to block use of taxes globally. The backlash suggests that industry believes the taxes would reduce consumption. SEMDSA rejected the notion that health must be traded-off against the threat of job losses. It believed the levy should be kept at 20% as an expression of commitment to putting people’s health first before stakeholder-specific interests.

Discussion
Mr A Lees (DA) said Members were fully convinced that excessive sugar consumption was bad for health. However the challenge was to balance the health of society and other aspects of wellbeing as well. If the Committee and academics felt strongly about sugar consumption, why were they not pushing for the taxing of all sugary foods and beverages in some way? Why were SSBs being simply targeted? The impact of liquid sugar, in particular, was well-understood but why were academics not arguing for the taxing of sugar at initial source?

Dr S Thembekwayo (EFF) emphasised the need for supportive interventions to cut across the economic divide. Supportive interventions should be applied in poor and vulnerable communities as well; illiterate consumers of sugary beverages had to be considered.

Mr D Hanekom (ANC) said sugar intake in South Africa was very high and had to be brought down. The question was not whether there is a problem. Reducing sugar intake was a given- it had to be done. The big questions were whether the levy was a good measure, at what level and on which products. He added the Committee had to assume that the desired effect of the levy would be reduced sugar consumption. How the reduction in the demand for sugar would impact on the economy, job losses and small players in the market had to be explored further.

Ms T Tobias (ANC) said there was no doubt sugary beverages had to be levied. However, legislation had to take into account the challenges confronting South Africa. The debate should not be centred on the need for reducing sugar consumption, but on measures to mitigate unintended consequences. She added that stakeholders should not chase profit at the expense of health, there was need for a balancing act.

Ms Dunjwa agreed that the Committee had to start somewhere. It should never be profit before health, health should take precedence over the former.

Mr A Mahlalela (ANC) felt SANCDA should have pointed out the cost implications of NCDs from a public health point of view, so the Committee could get a clearer sense of government expenditure on health- which was expected to spiral owing to NCDs. It had to be that understood people were already losing jobs as a result of NCD-related health challenges due to sugar consumption. Job losses should be looked at holistically.

Mr Carrim said the Department of Health never implied that the levy would be the only intervention. It was one of a multiplicity of interventions. He suggested the introduction of the levy as a provisional measure- to be reviewed within 24 months- if a relative degree of consensus could not be found. This would be meant to keep the doors open for improvements and mitigation of unforeseen circumstances.

Ms Byrne, in response to Mr Lees, said ADSA believed a levy on SSBs would have the greatest impact. It was hoped that interventions would be extended to other sugary products in future. She felt so strongly about the levy because, as a public servant serving the poor, she knew that people are not aware of the contents of the drinks they consume.

Ms Allie, SANCDA, suggested other practical interventions such as the banning of sugary beverages in health institutions and providing industry with incentives to reduce sugar in their products. Reinvesting revenue from the levy towards capacitating people affected by job losses to acquire other skills would be noble as well.

Consumer Goods Council of South Africa (CGCSA) submission
Mr Gwarega Mangozhe, CEO: Consumer Goods Council of South Africa (CGCSA) said CGCSA supports the Department of Health’s National Strategy for the Prevention and Control of Obesity as well as the Strategic Plan for the Prevention and Control of NCDs. On the other hand, CGCSA was very aware of the increased financial burden on South African consumers created by additional fees and taxes levied by different government departments, such as the Departments of Agriculture, Forestry and Fisheries, the Department of Energy (Increased fuel levy) and more. The proposed Health Promotion Levy was not the only additional financial burden facing consumers. Participants in the food and beverage industry try to address the plight of consumers through special discounts to ensure ‘value for money’ purchases and by absorbing increases as much as they can (as confirmed by the lower than expected year-on-year inflation rate for the Food and Beverage Industry as announced by the Reserve Bank on 24 May 2017). Unfortunately, all the additional taxes, levies and fees will eventually prove to be too much to absorb by the industry. The South African consumer (whether employed or unemployed) will suffer, and this cannot be the intention of government.

CGCSA believed all health issues have the potential to be addressed emotively, instead of logically and holistically. Obesity and its accompanying diseases could only be addressed successfully to ensure a healthier population if the habits, beliefs, attitudes, choices and preferences of individual South Africans are addressed, and their access to healthy, affordable and available food and beverages are assured. This required a detailed ‘roadmap’ with set targets, dates and ways to monitor and compare progress, as well as a way to address non-compliance. Levying a tax at this stage was aimed at addressing the consequences of obesity, not the root causes. Such an action would be a tragedy.

Mr Mangozhe pointed out the efforts of different sectors to improve the health of South Africans. For example, for a long time, all sectors in the Food and Beverage Industry have been taking part in an initiative to provide information and education to consumers in an effort to improve and influence the choice of healthy food amongst South Africans. Without healthy food on the table, all the education, taxes and levies become irrelevant.
CGSA recommended a clearly stated goal to reduce obesity that would entail understanding its origins and progress as a disease in communities– not just the treating of its effects. A combined plan of action, coordinating the multiple actions currently in progress in government, industry and the health sector. Stakeholders need a commitment to a holistic approach using what is already funded and planning for what is still lacking. Progress, funding and expenditure will have to be transparent. He urged stakeholders to ‘stop trying to find short-cuts to short-term, ineffective solutions’. Obesity is a health issue, and had to be addressed as such.

South African Cane Growers Association (SACGA) submission
Mr Rex Talmage, Executive: South African Cane Growers Association (SACGA) indicated that the Association represents the country’s approximately 20 000 sugar cane growers, who operate mainly on small family farms and annually produce on average 19.9 million tons of cane, farm in excess of 371 662 hectares under sugar cane and make a substantial contribution to the economy, mainly in the rural areas of Mpumalanga and KwaZulu-Natal. Growers are an integral part of the sugar industry as they carry 64% of industry costs, with the milling companies contributing 36%. However, the current situation was dire and the current sustainability of the industry is threatened by a number of external factors. SACGA decried that despite a motley of challenges faced by the industry, National Treasury had gone ahead and proposed a levy on sugary beverages. The singling out of an individual ingredient in a particular product as the levy aims to do, was unlikely to achieve the desired health outcomes. A multi-disciplinary approach was actually required.

Small-scale growers would be significantly impacted on by the decision to implement the levy. In many instances, the small-scale growers operate on marginal soils and at a considerable distance from the mills. Based on the industry average of about 60 tons cane/ha, more than 13 500 hectares (90 000 tons of sugar) were at risk. On average 1 000 ha of commercial cane production results in approximately 133 permanent jobs and 210 seasonal jobs. 1 795 permanent and 2 835 seasonal jobs could be affected, and this did not take into account the knock-on effects in terms of number of people in a household, access to social welfare, home industries that rely on workers as well as small business.

Mr Talmage emphasised that insufficient consideration had been given to the full impact of the imposition of the levy. The basis for the tax rate of 2.1c/gram of sugar above 4g/100ml has not been specified and the scientific reasoning for legislation of this nature should be made available for public scrutiny, as the levy was intended to effect health outcomes. The Association appreciated that rate of the levy had been reduced since the initial amount proposed by National Treasury. Commitment was required that the rate, going forward, not be increased by more than the CPI (consumer price index). He added that SACGA was committed to promoting diversification of income streams. However, diversification was not always viable on small units and could not replace the income earned from sugarcane.

SACGA recommended the following:
- Multi-disciplinary approach to be followed to manage obesity in South Africa;
- An independent Socio-Economic Impact Assessment of the proposed intervention on the sugar industry and its value-chain be considered ahead of implementation of levy.
- A strong awareness campaign to accurately inform and enable the public in following healthy diets.

Tongaat Hulett submission 
Tongatt Hulett disputed arguments brought forward by proponents of the levy. Tongaat Hulett felt vilifying sugar was not right as sugar had no particular or specific role in bringing about obesity; tax on sugars was therefore low impact. It was as much a mistake today to vilify sugar as it was in the past to vilify fat. Sugar industry is important to South Africa. Approximately one million South Africans depend on the sugar industry for their livelihood. Of the 21 441 registered growers in the South African Sugar Industry in 2016/17, 94% were small-scale growers, of whom 90% are located in KwaZulu-Natal. Total revenue earned by sugarcane growers in KZN in 2016/17 was R6.7 billion, of which R1.25 billion was earned by communal, small-scale and land reform growers. Therefore, the estimated revenue that Treasury would derive from the Health Promotion Levy was similar to the total annual earnings of all sugarcane growers in KZN.

Tongaat Hulett outlined the following:
- Sugars are not harmful and do not cause obesity; obesity is rooted in the sedentary nature of post-industrial life and more widely available and affordable food. Prevalence of obesity is growing as prosperity increases. Without a material impact on obesity, the tax cannot have a favourable impact on NCDs. For less than 100g per person, the tax would cost consumers half a trillion rand over a South African person’s lifetime.
- Less obesity requires less food energy
- The tax would not make a difference to obesity
- The tax will be harmful to the rural social economy as it will reduce domestic market sugar volumes and shift this sugar on to the export market, leading to a reduction in revenue for current volumes by about half and substantially put a strain on already tight margins of farmers and millers.

Tongaat Hulett expressed concern that the Health Promotion Levy was uncapped and increases are unfettered as the Rates and Monetary Amounts and Amendment Bill was revised annually. Therefore, the levy could and would be increased way above inflation (in real terms) as has been the case for the so-called “sin taxes”. National Treasury stated that, if obesity does not come down, the level of the levy will be increased in real terms. As the levy will not reduce obesity, future increases in the tax rate were highly likely. National Treasury claims that the job losses are only in the SSB industry, not upstream in agriculture. This made no sense, as the premise of the levy was that higher prices and reformulation would lead to lower sugar consumption. Also, Treasury had ignored concerns raised and recommendations put forward by the sugar industry, and to date no direct consultations had taken place between government and the sugar industry. The Committee not waiting for the conclusion of the NEDLAC process would render the process meaningless. The process requires real commitment and realistic time frames to be concluded.

In conclusion, the tax would hurt the vulnerable, the small scale and new emerging, communal and land reform farmers. The loss of revenue will squeeze already tight margins, resulting in job losses and risking reversal of major developmental gains. Tongaat Hulett recommended the removal of the Health Promotion Levy on Sugary Beverages from the Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill 2017, pending finalisation of the existing NEDLAC process and co-development of mitigation strategies that are supported by government, business and labour.

Beverage Association of South Africa (BevSA) submission
Mr Tshepo Marumule, General Manager, BevSA, said the beverage industry was concerned about the rate of obesity in South Africa, and is committed to working with all stakeholders and be part of the solution. The obesity problem in South Africa was generally caused by high calorie intake and insufficient physical activity. In order for the country to be successful in combating the problem it was imperative that the entire calorie intake across all foodstuffs be considered, which should be informed by proper research.

BevSA did not believe a permanent and sustainable solution could be found through the Health Promotion Levy, which could have unintended detrimental effects on the economy and job creation efforts. The levy was aimed at reducing the rate of obesity and non-communicable diseases in the country, however in its current form the said levy is misplaced in the Rates and Monetary Amounts and Amendments of Revenue Bill. The levy should be considered as a new tax and should follow the appropriate administrative procedure where all social partners are afforded adequate time to further consult and engage on the matter. As an integral part of the bill amendment process, it was imperative to clearly outline objectives, recourse and remedies to be undertaken in the event of the unintended consequences of the tax, and a comprehensive Socio Economic Impact Assessment (SEIA) that examines both the economic and health consequences of the implementation should be prepared. The industry believes that further engagements across the SSB value-chain should be explored and consider other options available which can potentially help government achieve better health outcomes, while maintaining the economic role that the industry plays. BevSA respects government’s intentions in reducing the prevalence of obesity and Non-Communicable Diseases, and was committed to being an essential partner in helping in achieving those intended objectives.

The sugar tax takes a narrow view of the socio economic impact it would have on the broader value-chain. Assuming that the revenue is used for deficit reduction and not reinvestment, as was the case with other taxes that are not reinvested in a specific sector, the proposed levy would reduce GDP by R1.85 billion with unavoidable job losses. The largest loss is expected to be experienced in the informal sector where an anticipated 4000- 6000 closures of informal outlets is foreseen, outlets where SSBs are estimated to contribute 17% of revenue and 30% of margin to spaza stores. The total job losses across the industry and value chain would number around 24 000 jobs and not the 5 000 suggested by proponents of the levy.

In conclusion, BevSA was committed to creating an enabling environment for healthier choices. Interventions identified include: partnering with government on promotion of healthy lifestyle through initiatives such as the Big Walk, park gyms; sugar reduction (reformulation), smaller packs, marketing of diet, no sugar options and no marketing to children as well as working with the Department of Health on new labelling regulations. He added that BevSA launched healthy lifestyle booklet with Social Development on healthy choices.

Coca-Cola Beverages South Africa (CCBSA) submission
Mr Velaphi Ratshefola, Managing Director at Coca-Cola, questioned the effectiveness of a levy aimed at singling out one food item in addressing a complex and challenging issue, at the risk of other critical socio-economic factors. There was a better way, and CCBSA was asking government for an enabling regulatory framework and not punitive and regressive tax. Proposals included the following: regulating amount of sugar in SSBs per 100mls, instituting external and independent monitoring, having a timeframe for execution and compliance, and introduction of a fiscal penalty for failure to comply. Benefits of the proposed regulatory framework were to: manage free riders (those players that are not part of the industry body); drive collaborative, multi-stakeholder, multi-pronged solution that will bring about effective and sustainable health and economic solutions; deliver higher impact in addressing drivers of obesity as stipulated by health, without drastic impact on economic growth of beverage sector while sustaining employment.

CCBSA acknowledged the challenges of obesity and was committed to becoming part of the solution. CCBSA undertook to fully implement its reformulation, portion control and expansion of diets, zeroes and lights, and was confident that its approach would have greater health benefits than the proposed levy; while providing economic opportunity, instead of economic risk. McKinsey Global report, in addressing obesity, states the need for a portfolio of interventions and found that portion control is the most effective industry contribution, followed by reformulation of SSBs; SSB taxes rank in the bottom quartile on their effectiveness; some developed markets which introduced this type of tax were now reversing it, due to its failure to effectively address obesity (Finland and Denmark).

The thrust would be to drive overall change in social behaviour through encouraging reduced consumption of sugar by increasing marketing of Diets, Lights and Zeroesincreasing zero offering in other various brands, cheaper pricing for Diets, Lights, and Zeroes, over-indexing on merchandising of Diets, Lights and Zeroes in outlets as well as a focus on the actual drinks made and how they are sweetened. Also, CCBSA was committed to the promotion of portion control by introducing smaller packs and the reformulation of its brands. Coca-Cola systematic efforts would drive down average unit sugar content by 22-24% by the end of 2018.

Increasing percentage of the population engaging in physical activity was part of a host of alternative measures suggested by CCBSA. CCBSA’s wellbeing approach was designed to help address the public health challenge of obesity which affects employees, stakeholders and communities in generally. For over 10 years, the company has continued to sup­port physical activity programmes, especially those focusing on improv­ing the health of young people and creating awareness on the impor­tance of active healthy living. Together with bottling part­ners, Coca-Cola Beverages South Africa and Coca- Cola Peninsula Beverages sup­port non-mainstream, family-orientated, active, healthy living programmes. The company was willing to partner nationally with government and health practitioners to increase awareness and education of its consumers towards obesity prevention in early childhood.

Mr Ratshefola pointed out that driving education on healthy food choices was paramount. Since 2011, CCBSA has included Fact-based Guideline Daily Amount (GDA) Labelling in its products. However, in the absence of a massive nationally-led consumer education campaign informing consumers about their sugar intake, this information is not easily understood. CCBSA called upon the Department of Health to work with industry to educate and inform society.

Pioneer Foods submission 
Mr Martin Neethling, Chief Marketing Officer, Pioneer Foods, said the company acknowledged and recognised the problem of excess sugar in the diet of South Africans and proactively contributes to population-based health promotion. As a nutrition based food and beverage business, Pioneer Foods’ commitment to health promotion transcended beyond sugary beverages, to pre-emptive and proactive measures to achieve health promotion across its product range; not merely unsweetened 100% fruit and vegetable juices and beverages.
Exclusion of unsweetened 100% fruit & veg. juices from the levy was commended as a timely initiative in contributing to addressing the problem of excess sugar intake in diets and its impact on the prevalence of Non-Communicable Diseases (NCDs) and obesity. On administration of the levy, while ring-fencing and targeted earmarking was not government policy for levies and taxes, it was imperative to ensure that the targeted objectives of the Health Promotion Levy in conjunction with other non-fiscal complimentary interventions are achieved. This would require a flow-through of funding allocation to dedicated and viable priority interventions and programmes aligned with Department of Health policy, as approved through the annual budgeting cycle of government and Parliament.

Pioneer Foods recommended that the exclusion of unsweetened of 100% fruit and vegetable juice at this point in time, be supported in contributing to health promotion in conjunction with other voluntary initiatives being undertaken. Pioneer Foods was already implementing voluntary health promotion initiatives such as product reformulation; package resizing; improved labelling and ingredient disclosures, and responsible marketing and advertising. Future reviews must be informed by scientifically evidence-based and comprehensive nutritional studies; International Benchmarking, Socio-Economic Impact Assessment and consultations.

Discussion 
Ms Tobias said Tongaat Hulett’s presentation was absurd. To say excess sugar does not cause diabetes was ‘offensive’. The argument that sugar is not a factor in causing diabetes should be retracted as it did not hold water. She commended BevSA and CCBSA for presenting alternatives towards the fight against excess sugar consumption related NCDs. Identified alternatives would need to be implemented on the ground.

Ms Thembekwayo commended alternatives brought forward by the sugar industry. However, the strategies should also extend to the remotest spaza shops in the country. Tongaat Hulett might have reviewed literature that agreed with its desired outcome. However, there was need for NGOs and industry to understand concerns from a broader perspective to avoid contradictions.

Mr Mangozhe, CGSA, replied that Dr Thembekwayo’s suggestion was commendable and would be taken on board as part of an expansive awareness drive by CGSA.

Ms D Mahlangu (ANC) said Tongaat Hulett’s arguments were unconvincing as the relationship between excess sugar consumption and NCDs was well-known. She was appreciative of BevSA’s partnership initiatives. She added that the NEDLAC process was important to the Committee and all stakeholders involved, and would not be overruled.

Dr P Maesela (ANC) pointed out that people’s lives had to be saved. He indicated that sugar growing in South Africa started in the 1860s. However, it was clear that local communities had not benefitted, and Tongaat Hulett had to revise its arguments.

Mr Carrim, directing his comment to Tongaat Hulett, pointed out that legislation was a political process. However, Tongaat Hulett needed to understand what scientific and academic research had to say. He clarified that the Committee never said it would not take NEDLAC positions into account. The Committee would give the process reasonable timeframes, and the vote would be conducted regardless of its conclusion.

Mr B Topham (DA) said solutions had to be multifaceted. The levy was not about the revenue but health about concerns. He asked if Coca-Cola was prepared to put health warnings on its products as part of a multifaceted approach.

Mr Lees asked if Coca-Cola and BevSA undertook extensive research before switching from sugar to artificial sweeteners. He was not convinced that the levy should only be on sugary beverages. If excessive sugar consumption was a concern, then sugar should be taxed at initial source, to encompass all sugary food substances.  

Mr Hanekom said the tax was for health promotion, not punitive. The levy would influence consumer behaviour by reducing sugary beverages consumption, thus reducing demand for sugar. Therefore the challenge was how to address unintended consequences such as job losses. It was doubtful the levy would lead to a net job loss scenario- consumers would switch to alternatives such as juices. Stakeholders would therefore need to look into alternative employment for those who might lose jobs in the beverages industry.

Ms Dunjwa was appalled by Tongaat Hulett’s arguments in support of sugar consumption. There was no fairness and honesty in it submission; which was a cause of concern. Some Members were health workers and had witnessed first-hand accounts of the health effects of excess sugar consumption.

Mr Talmage, SACGA, said the Association has been exploring alternatives such as market diversification. It was a complex exercise but SACGA was doing its level best. He invited Members for a tour on its premises to witness the development work being done.

Mr Ratshefola, CCBSA, acknowledged Members’ concerns. The challenges were multipronged and needed a multifaceted approach to address.

Mr Marumule, BevSA, in response, said stakeholders had to start somewhere. He strongly suggested enforceable regulations to reduce sugar content in SSBs. To the extent that collaborative efforts and regulations were ineffective, a levy could then be imposed as a punitive measure for non-compliance.

Ms Lynn Moeng-Mahlangu, Chief Director: Nutrition, Health Promotion and Oral Health, Department of Health, indicated the choice was between physical activity and the food environment. The food environment was very critical. Industry alternatives largely focus on those already overweight, whereas metabolic syndrome was a challenge affecting the entire weight spectrum. Therefore, supporting physical activities without addressing the food environment was not going to be effective.

Mr Legote refuted claims that Treasury was reluctant in its consultation processes. Extensive consultations were conducted and Treasury could furnish the Committee with evidence to that effect.

Ms Dunjwa, in closing, asked presenters to submit responses in written about Members’ concerns.

The meeting was adjourned.

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