It’s go­ing to be a tax­ing year

CityPress - - Business - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­

The fate of at least two far­reach­ing new taxes will be an­nounced in Fe­bru­ary when the fi­nance min­is­ter, who may or may not be Pravin Gord­han at that point, de­liv­ers the Bud­get Re­view. The car­bon tax and the sugar tax have prompted mas­sive coun­ter­at­tacks from cor­po­rate South Africa, with a war of eco­nomic con­sul­tants play­ing out in pub­lic.

Treasury seems set on push­ing ahead with the tax on sugar-sweet­ened bev­er­ages. By now it is known that Treasury has al­ready al­tered parts of the orig­i­nal pro­posal. Fruit juice con­tain­ing nat­u­ral sugar will no longer be ex­empted.

The tax will also prob­a­bly take the form of a levy in­stead of an ex­cise tax – a dis­tinc­tion that pri­mar­ily keeps the sugar tax rev­enue from be­com­ing part of the South­ern African Cus­toms Union rev­enue pool and keeps it all in South Africa.

This is ac­cord­ing to Virusha Sub­ban, a part­ner at law firm Bow­mans, in a “re­port-back” from a Treasury work­shop late last year.

In­clud­ing fruit juice sig­nif­i­cantly ex­pands the range of com­pa­nies that will pay the tax. Be­cause fruit juice gen­er­ally re­tails at higher prices than soft drinks, the tax will, how­ever, amount to a smaller ad­di­tional cost.

For ex­am­ple, 1.5 litres of Liqui-Fruit costs about R30 at Pick n Pay. The juice has a sugar con­tent rang­ing be­tween 100g and 120g per litre.

This means a tax rate of as lit­tle as 11% com­pared with rates well over 20% that soft drinks with larger vol­umes of sugar will at­tract.

The sugar tax has been sub­ject to enor­mous pub­lic pol­i­tick­ing rem­i­nis­cent of the first at­tempts to curb tobacco.

The in­dus­try’s most com­mon at­tack is that there is not enough ev­i­dence that the tax will work to im­prove South Africans’ health.

Coca-Cola and its peers in The Bev­er­age As­so­ci­a­tion of SA (Bevsa) have been fund­ing and pub­li­cis­ing re­search em­phat­i­cally say­ing that it won’t work.

Their eco­nomic mod­el­ling ex­er­cises have also pro­duced es­ti­mates of cat­a­strophic eco­nomic dam­age.

When pressed, the econ­o­mists gen­er­at­ing these es­ti­mates ad­mit freely that they have to be taken with a pinch of salt for lack of good data.

This ad­vice has not fil­tered through to their client Bevsa, which has been buy­ing at­tack ad­verts against the tax and loudly pro­claim­ing that it will de­stroy jobs and achieve none of its goals. If the tax goes ahead, con­sumers can ex­pect a range of re­sponses from the in­dus­try.

Coca-Cola has al­ready in­tro­duced its Coke Life prod­uct to South Africa. In it, some of the sugar is re­placed with a sweet­en­ing sub­sti­tute.

Apart from this kind of re­for­mu­la­tion, the in­dus­try will be heav­ily in­cen­tivised to change the mix of unit sizes it sells. The tax is far higher on cooldrinks sold in big bot­tles.

This is due to the lo­cal in­dus­try’s prac­tice of charg­ing far more for small units, on a litre-for-litre ba­sis.

Some of the tax will inevitably fil­ter through to shop shelves at some point in the year.

The car­bon tax has far more widerang­ing eco­nomic im­pli­ca­tions. The plan to price car­bon at R120 per ton still stands.

So does the plan to have gen­er­ously tax-free al­lowances at first, which will al­low pol­luters to be ex­empted from up to 95% of the tax at first, ac­cord­ing to a pre­sen­ta­tion given at a work­shop late last year by Mem­ory Machingambi, a tax an­a­lyst at Treasury.

The main tar­get of the tax will be Eskom, but the tax is de­signed to not af­fect power prices un­til 2020.

Af­ter that, the cost will most likely be passed on to con­sumers through the elec­tric­ity tar­iff.

The ail­ing steel in­dus­try is the most ob­vi­ous vic­tim of the tax, with ArcelorMit­tal SA hav­ing ar­gued that it will be ru­ined if the tax is im­posed.

The spe­cial sen­si­tiv­ity of the steel in­dus­try is ad­mit­ted to by con­sul­tants for Treasury, who late last year pro­duced an eco­nomic mod­el­ling ex­er­cise to demon­strate the best de­sign op­tion for the tax.

Like eco­nomic mod­el­ling from the pri­vate sec­tor, the Treasury re­port has fa­tal flaws.

It fore­casts how the tax will af­fect eco­nomic ac­tiv­ity and car­bon emis­sion based on a hy­po­thet­i­cal South African econ­omy where de­ci­sions such as what power sta­tions to build are some­how de­ter­mined by the mar­ket.

In re­al­ity, Eskom de­ter­mines this, and the rel­a­tive costs of dif­fer­ent gen­er­a­tion tech­nolo­gies is clearly not Eskom’s only con­cern, as can be seen from its ad­vo­cacy for nu­clear.

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