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Sugar tax windfall of R8bn – but negligible spend on health ‘promotion’

South Africa’s Health Promotion Levy (HPL) on sugary beverages, implemented to decrease diabetes and obesity, has collected R7.9-billion since 2018.

The tax revenue generated isn’t ringfenced for any particular expenditures and only R38-million of the health promotion allocation has been spent by the national department of health.

More than 4.5 million adults in South Africa are diabetics, according to the International Diabetes Federation (IDF). Almost 70% of South African women and 39% of men are overweight or obese, notes the Healthy Living Alliance. This burgeoning health crisis has, in part, been blamed on South Africa’s high intake of processed sugars. 

It’s against this backdrop that the HPL on sugary beverages was introduced in 2018, slashing the beverage sector’s use of sugar by a third in it’s first year, according to a report by the WHO

And while the medical benefits of the HPL are likely to only be fully recognised in the long-term, South Africa’s National Revenue Fund has already seen some healthy returns.

The domestic consumption tax, which collects from local manufacturers and on sugary beverages imported into the country, has paid R7.9-billion to the South African Revenue Service (SARS) in three years.

This was revealed by Finance Minister Tito Mboweni in reply to a parliamentary question concerning the HPL and its effectiveness in reducing obesity in South Africa. 

“Tax revenues from the HPL are not earmarked or ringfenced for any particular expenditures, but instead flow into the National Revenue Fund,” explained Mboweni in his written reply.

“However, additional funding for health promotion and chronic disease prevention was allocated in the National Department of Health budget. The National Department of Health has spent R24-million in 2019/20 and R14-million spent in 2020/21 on the health promotion allocation.”

The department’s health promotion spend amounts to just 0.5% of the total revenue generated by the HPL, with R50-million allocated to the 2021 Medium Term Expenditure Framework (MTEF).

Lockdown lowers revenue

HPL collections contracted by 16.4% in 2020 as a result of the coronavirus-induced lockdown. With most manufacturers of sugary drinks not being classified as essential services – and, as such, bound by the strict lockdown regulations – production was dramatically reduced, according to Mboweni.

“Furthermore, it appears that the impact of the restricted sales on alcoholic products during the Covid- lockdown is one of the drivers behind the lower manufacturing of sugary drinks as demand has also fallen.”

The HPL is calculated at a rate of 2.1 cents per gram of the sugar content that exceeds 4 grams per 100ml. This is in addition to customs and excise duties payable on imports. 

Although the health department has not noticed any great direct financial benefits from the HPL, Mboweni explained that the tax had increased the retail price of sugary beverages and that, in turn, had led to a reduction in consumption. 

“The study finds that there was a decrease in the consumption of taxable beverages, with a smaller increase in the consumption of non-taxed beverages, and that the impact was greater for lower income households,” noted Mboweni.