The 1st of April 2019 marks a year since the introduction of the Health Promotion Levy on sugary beverages, or “sugar tax” levy as it is commonly referred to. The sugar tax levy was the first of the “Health Promotion” levies to be introduced, as a support to the “Department of Health’s deliverables to decrease diabetes, obesity and other related diseases in South Africa”.
As noted, the idea behind sugar tax was to tackle South Africa’s high levels of diabetes and related diseases, which is ultimately placing severe strain on the country’s fragile health system, which is one of the largest beneficiaries of the fiscal purse.
All items manufactured in or imported into South Africa as noted in Section A of Part 7 of Schedule No. 1 of Chapter VB of the Customs Act (SCH1), are subject to the levy. The rate of sugar tax at 1 April 2018 was 2.1 cents per gram of the sugar content that exceeds 4 grams per 100ml. This implied that the first 4 grams of sugar per 100ml were essentially free of the levy. The 2019 budget speech saw an increase in the rate to 2.21 cents per gram of the sugar content that exceeds 4 grams per 100ml, “to avoid an erosion in the value of the tax due to inflation.”
The sugar content of sugary beverages liable to the levy on these beverages must be calculated on –
- the sugar content as certified on a test report obtained and retained from a testing laboratory accredited with and using methodology recognised by the South African National Accreditation System (SANAS) or the International Laboratory Accreditation Cooperation (ILAC); or
- in the absence of a test report, the sugar content of the sugary beverage will be deemed to constitute 20 grams per 100 millilitres.
This requirement has placed an administrative burden on the taxpayer and we have noted instant interrogation from SARS, in the form of audits being conducted within the first few months of implementation.
Taxpayers who are manufacturers and importers of items used in the preparation of sugary beverages (concentrates, smoothie mixes, hot chocolate powders, etc) are urged to familiarise themselves with the content of the items subject to the levy as noted in SCH1, so as to identify and mitigate any potential risks of non-compliance.
The significant revenue collections from the levy (apart from the intended benefit of reducing diabetes and related diseases), which have exceeded forecasts, indicate that the levy is here to stay, for at least the foreseeable future.
Associate Corporate Tax, Johannesburg