Bowmans lawyers Virusha Subban and Yonatan Sher analyse how the United Kingdom's draft 'Soft Drinks Industry Levy' may translate into similar legislation soon to be introduced in South Africa.
Less than a month after South African Finance Minister Pravin Gordhan delivered his 2016 budget speech, where he announced the proposed new tax on sugar sweetened beverages, his United Kingdom (UK) counterpart Chancellor George Osborne announced a similar initiative in the UK budget speech.
Although the UK’s tax is only slated for April 2018, whereas South Africa’s is due to come into force a full year earlier in April 2017, the UK government has already published the first draft of their new “Soft Drinks Industry Levy” on 5 December. This draft bill sets out the legislative changes to tax laws which the UK government plans to introduce in Finance Bill 2017.
The South Africa (SA) Treasury has indicated that it will only publish draft legislation in early 2017.
SA legislators may look to provisions in the UK draft bill for guidance on how to structure some of the aspects of the SA tax, but the UK tax differs from the current SA proposals in several significant ways.
According to the draft bill, a beverage will be taxed if it contains added sugar, as long as it contains 5g or more of total sugars per 100 ml. Only beverages with an alcoholic strength of less than 1.2% will be taxed. Furthermore, alcohol substitute drinks will be exempt, as well as beverages used for medicinal purposes.
Significantly, pure fruit juice and vegetable juice will be exempt from the tax. Contrast this to SA, where Treasury recently announced that it is considering taxing pure fruit juice, and that its earlier proposal to exempt fruit juice ‘was a mistake’. There has been no indication of Treasury’s view on vegetable juice.
The draft bill exempts all milk-based drinks (drinks which contain at least 75ml of milk per 100 ml) and milk substitute drinks (drinks containing a specified quantity of calcium) from the UK tax, whereas SA Treasury has indicated that only unsweetened milk products would be exempt from the SA tax.
The draft bill provides for a “small producer exemption”, where producers who do not exceed 1 million liters in the previous 12 months are exempt from the tax. In its July policy paper, the SA Treasury also indicated that it intends excluding small operators, but did not define these further.
The draft bill provides for the taxation of both ready-to-drink beverages and concentrates which are intended to be diluted with water, or prepared with ice or carbon dioxide. It appears from the draft bill that the UK does not intend taxing drink mix sold in powder form, as only liquids (such as concentrate) intended to be prepared with water are specified. Contrast this to SA, where Treasury recently announced at a stakeholders’ workshop that it was considering extending the scope of the tax to include powder, and that it welcomes industry data in this regard.
Another significant difference between the proposals in the two jurisdictions is that the UK is opting for a threshold approach to the sugar tax, where the beverage will not be taxed per gram of sugar it contains. Rather, the tax will be fixed according to whether the beverage falls into one of two categories, with the proverbial line in the sand set at the 8g per 100ml mark. On the other hand, as it articulated in its July policy paper, the SA Treasury recommends that a threshold approach not be used, but rather every gram of sugar in a beverage should be taxed at 2.29 cents per gram of sugar, with the intention of increasing that rate yearly by at least inflation. It has commented that while the threshold approach could still be considered in SA, a well-reasoned argument would be needed for the proposed threshold, and that taxing every gram of sugar is more logical, and would be easier to administer.
The Standing Committee on Finance and the Portfolio Committee on Health have invited written comments on the Sugar Tax by 27 January 2017, with public hearings in Parliament scheduled for 31 January 2017.