Chronic illnesses like diabetes, hypertension, and cardiovascular diseases contribute to over 70% of deaths worldwide each year.
In South Africa, non-communicable diseases account for more than half of all fatalities, with diabetes ranking as the second leading cause following tuberculosis.
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A major factor behind the soaring diabetes rates is the high consumption of sugar-sweetened beverages, especially soft drinks.
The World Health Organization recommends a minimum tax of 20% on sugary drinks as an effective method to curb consumption and mitigate related health risks.
In 2018, South Africa introduced the Health Promotion Levy, a tax on sugar-sweetened beverages.
This tax is charged at R0.0221 ($0.0012) per gram of sugar that exceeds a 4g/100ml threshold, which equates to about 8% of the final selling price. Although the tax has seen minor adjustments since its inception, it has not kept pace with inflation and has fallen short of the original 20% target due to pressures from the industry that led to a less robust version.
I lead the South African Medical Research Council/Wits Centre for Health Economics and Decision Science – PRICELESS SA, which has been studying various aspects of the levy for over a decade.
PRICELESS SA continues to analyze the health and economic impacts of not implementing the Health Promotion Levy at the suggested 20%. The lack of recent data complicates this assessment. Nonetheless, it is vital to recognize that the World Obesity Report highlights obesity as a significant concern in South Africa.
If no measures are taken, obesity in South Africa is projected to impact 30 million adults and 10 million children by 2035. In 2019, there were 55,238 deaths in South Africa from obesity-related non-communicable diseases, and with an annual obesity growth rate of 2.3%, mortality rates are anticipated to escalate.
The effectiveness of taxing sugary beverages
Despite claims from the sugar industry about the ineffectiveness of the Health Promotion Levy, global evidence contradicts this. Countries implementing such taxes have seen notable declines in sugar consumption.
A total of 103 countries and territories worldwide have introduced taxes on sugar-sweetened beverages, with many experiencing positive outcomes.
For example, Ireland witnessed a 30.2% reduction in sugar intake from these beverages.
A study in California showed a decrease in rates of overweight and obesity among youth in cities that adopted sugary beverage taxes.
Mexico implemented a tax of 1 peso ($0.05) per liter on sugar-sweetened beverages in 2014, resulting in a 37% decline in sales by 2016.
Similarly, the UK’s tax, which began in 2018, led to a 35.4% reduction in sugar consumption from taxed drinks.
In South Africa, the levy has positively influenced purchasing behaviors, with studies indicating a decrease in sales of sugary beverages. More significant reductions have been noted among lower socioeconomic groups and demographics with higher sugary drink consumption.
Average sugar intake from taxable beverage purchases fell from 16.25 g/capita per day prior to the health promotion levy announcement to 10.63 g/capita per day in the first year after implementation.
Lower-income households, which initially purchased more taxable sugary drinks compared to wealthier households, displayed the most noticeable declines in consumption following the enforcement of the tax.
This is especially critical as non-communicable diseases disproportionately affect poorer and more vulnerable populations.
Stricter taxation on sugary beverages not only decreases consumption but also motivates manufacturers to reformulate their products, leading to healthier alternatives.
The levy does not lead to job losses
Our research directly challenges these claims.
A recent study by PRICELESS SA, funded by Bloomberg Philanthropies through the University of North Carolina and the South African Medical Research Council, found no significant link between the levy and employment figures. The study showed that the levy did not substantially affect job creation or losses in sugar-related sectors, such as agriculture, beverage production, and food and drink retail.
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The study identified several factors that might explain this:
Firstly, companies could shift labor within their operations rather than laying off staff.
Secondly, many beverage manufacturers have reacted to the tax by reformulating their products to lower sugar content and utilizing non-nutritive sweeteners rather than reducing production.
Thirdly, demand for taxed sugary drinks has not decreased enough to affect employment levels.
Lastly, consumers often switch to untaxed alternatives produced by the same firms, preventing financial losses for the industry.
Increasing the levy benefits public finances
The recent delay of South Africa’s budget speech, caused by internal government disputes over a proposed two-percentage-point increase in value-added tax, highlights the urgent need for alternative revenue sources.
South Africa’s healthcare system incurs substantial costs due to overweight and obesity, totaling R33 billion (US$1.78 billion) annually. This amount represents 15.38% of the government’s health budget and 0.67% of the country’s GDP, translating to R2,769 (US$150) per person per year.
In contrast, the levy generated R5.8 billion (US$313 million) in revenue during its first two fiscal years.
Additionally, increasing the tax rate would not only raise funds but also provide public health benefits and savings for healthcare services.
According to our research, raising the levy to 20% could reduce obesity rates in South Africa by 2.4 to 3.8 percentage points, prevent 85,000 strokes, and save 72,000 lives over two decades.
These improvements could potentially save more than R5 billion (US$270 million) in medical expenses.
Unlike other tax measures that apply to all consumers equally, the levy mainly targets discretionary purchases, making it a fairer fiscal policy.
Thus, it is crucial for the government to act – raise the Health Promotion Levy to 20% and address the sugar-related health crisis at its root.
Enhancing the levy to 20% would represent a more intelligent tax strategy for a healthier population.
Darshen Naidoo, Legal Researcher and Associate Lecturer at PRICELESS SA, University of the Witwatersrand, Johannesburg contributed to this article.
Susan Goldstein, Associate Professor at the SAMRC Centre for Health Economics and Decision Science – PRICELESS SA (Priority Cost Effective Lessons in Systems Strengthening South Africa), University of the Witwatersrand
This article is republished from The Conversation under a Creative Commons license. Read the original article.
