Sugar levy will drive producers to innovate
Market watchers have described the introduction of a levy on sugar content in beverages as a welcome development that will prompt manufacturers to reformulate their products and narrow health risks associated with their consumption.
Reformulation is the process of cutting on sugar content and replacing it with a non-sugar substitute in response to the World Health Organisation’s calls for a tax on sugar-sweetened beverages (SSB).
In his 2024 National Budget Statement, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube announced the introduction of several tax measures to increase revenue flows into State coffers. Among them, Prof Ncube introduced a levy on sugar content in beverages.
The initiative is already being implemented in many countries globally including the Southern African Development Community region following growing concerns on the health risks associated with high sugar intake.
Market watchers opine the new measure will push businesses to tweak their products in line with the new levy and general health consciousness.
“A higher sugar tax encourages beverage manufacturers to reformulate their products. This can contribute to a decrease in sugar consumption, potentially lowering the rates of diet-related health issues such as obesity and diabetes,” said FBC Securities.
In the United Kingdom, the drinks industry cut sugar content in response to a 2018 tax. A year later, on average, people were consuming one fewer 250 ml sugary drink per week, replacing it with a non-sugar substitute. After four years, sugar consumed in taxed drinks was down by 35 percent.
“On the downside, higher taxes can lead to an increase in the price of sugary beverages, making them more expensive for consumers. This can influence purchasing decisions, with some consumers opting for alternatives or reducing overall consumption.”
The initiative might also lead to an increase in unregulated markets and flourishing of alternative products on the market.
Said FBC Securities: “In some cases, consumers might turn to cheaper, unregulated alternatives or the black market to obtain sugary beverages, potentially undermining the intended health impact of the tax.”
Studies have linked the high consumption of sugary substances such as beverages to the prevalence of health problems such as diabetes and obesity and other non-communicable diseases.
The introduction of a levy on sugar content is expected to tackle such problems and encourage healthy lifestyles.
“In response to the growing concerns on the adverse effects of consumption of sugar, in particular contained in beverages, tax on beverages has been implemented in several countries including in the SADC region and beyond,” said Prof Ncube.
“It is, thus, necessary to discourage consumption of high sugar content beverages, hence, I propose to introduce a levy of US$0,02 per gram of sugar contained in beverages, excluding water, with effect from January 1, 2024,” he added.
According to the Treasury boss, the funds collected from this levy will be ring-fenced for therapy and procurement of cancer equipment for diagnosis.
Countries like South Africa, Bahamas, Mexico, the UK and Barbados are among those that have implemented the levy on sweetened beverages to tackle health problems associated with high sugar intake. A World Health Organisation 2022 report suggested 88 countries were implementing the tax on sugar-sweetened beverages.
In Mexico for instance, a 2014 tax on sugary drinks raised prices by 11 percent and cut consumption by 37 percent within two years. After three years, the chance that an individual would stop drinking soft drinks increased by 4,7 percentage points according to the Act on Non-Communicable Diseases.