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SA Should Be Sweeter On Sugar Tax Case Solution

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In South Africa, the consumption of sugary foods, particularly beverages, has increased substantially, which has resulted in more and more people becoming obese and being subject to various health diseases like Diabetes2 and cardiac arrests. This has further placed a burden on its weak healthcare system, which does not have a developed infrastructure presently. To deal with this, the South African government introduced a sin tax on sugary products having sugar content that was higher than the acceptable consumption limit. The following report will analyse the risks and opportunities of levying a sugar tax on the South African economy by considering various aspects and finally give a conclusion if the associated risks are higher than the associated benefits that are expected to flow from the policy initiative.

Following questions are answered in this case study solution

  1. Introduction

  2. Risks

  3. Opportunities

  4. Conclusion

Case Analysis for SA Should Be Sweeter On Sugar Tax Case Solution

2. Risks

A major risk associated with levying sugar tax is the number of jobs that can be lost. As per the data provided, it can be seen that the sugar industry in South Africa provides employment to a large number of people. As per the South African Sugar Association, the number amounts to 72,000 direct jobs and 350,000 indirect jobs. The imposition of sugar tax can, therefore, result in a large number of jobs lost, which would be equal to approximately 47,800, although the National Treasury does not anticipate the losses to be greater than 1,475. This could be detrimental for the economy as the SA economy is still below par with many people living below the poverty level, as was founded in a study by Stainbank (2019)as he evaluated the influence of sugar tax on various economies.

Hence, higher unemployment would reduce the tax revenue for the government and place it in an intense pressure to provide for the unemployed. The standard of living will fall, which will, in turn, negatively influence the purchasing power of people. As the purchasing power will be influenced, the business’s sales volume will fall (Umair & Ullah, 2013). The overall impact would be a fall in the GDP and a shrinking economy, which can be disastrous for South Africa, given its status as a developing economy.

Another risk is that the sugar tax policy might still fail. The tax levied is most likely to be transferred to the consumers; hence this would raise the price of the products. This might still mean that people would shift to lower-priced substitutes or non-beverage sugar items, ultimately having no impact on the overall sugar consumption by the individuals; hence, the sugar tax might turn out to be completely ineffective in helping stop the rising consumption of sugary beverages (Finkelstein, et al., 2013). Also, it might result in an increase in the imports of sugar beverages, making the locally produced beverages difficult to compete with international competitors, which would be having lower prices. This can, in turn, damage the balance of payment position of the economy, as the imports would exceed exports.

Furthermore, as identified by Craven, Marlow, & Shiers, (2012) fat taxes on sugar might still not help overcome the problem of obesity and health disease as people might still visit restaurants and consume high-calorie food that may not be sugary but have the ability to adversely influence the health of the people. Hence, in such a case, the purpose of introducing the tax policy will be defeated. However, because South Africa is a poor country, less population is engaged in dining at restaurants and consuming high-calorie foods. Hence, this risk would be of low significance.

Lastly, a major risk factor is the extent of public acceptance of the taxation levied. As per a study, it has been found that the least accepted intervention by the government for the public to reduce sugar consumption is through taxation (Hagmann, Siegrist, & Hartmann, 2018). Hence, a sugar tax by the South African government can make it unpopular in the eyes of the public. On the other hand, it is preferred by the people that the companies label high sugar products or lead public health campaigns to spread awareness so that the public can decide for themselves what is better rather than get forced by the government to change its consumption patterns.

3. Opportunities

A benefit of the sugar tax is that if it has been found to be effective in countries like Mexico and even in South Africa that following the imposition of the tax, the consumption of sugary beverages reduce around 6 to 7% with increased consumption in bottled water purchases during the first year of imposition. Although South Africa just recorded a 4% increase in bottled water purchases, Mexico recorded a 10% growth as it entered the second year of sugar tax imposition. Hence, the number of South Africa's consumption can also be anticipated to inflate in the coming years, promoting a healthier lifestyle. Apart from this, considering the fact that the tax would not be levied on fruit juices, it would encourage the people to consume healthy fruit juices that would positively impact their health. 

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