Health Promotion Levy (Rates and Monetary Amounts and Amendment of Revenue Laws Bill): discussion

Meeting report

National Treasury presentation

Mr Ismail Momoniat, Deputy Director-General: Tax and Financial Sector Policy, National Treasury, took the committees through an update on ongoing engagements between government and the National Economic Development and Labour Council (NEDLAC). Treasury consultation process on Sugary Beverage Tax had been extensive. After the Minister of Finance announced the proposed tax on sugary beverages in February 2016, various bilateral meetings with industry associations and other stakeholders were held by Treasury and the Department of Health. A draft policy paper was then published for public comment in July 2016. Subsequently, Treasury received 144 written comments and thereafter, Treasury and the Department of Health hosted a public stakeholder workshop in November 2016, and held the first Committee public hearings in January 2017. The Draft Rates Bill was then published in February 2017, incorporating public comments until the 31st of March, with a revised tax rate and threshold (4g) which lowered the effective tax on sugary beverages. Consistent with the committees’ request for the sugary beverage tax proposal to be deliberated at NEDLAC, Treasury was happy to proceed with NEDLAC process but noted that tax involved winners and losers, and could not make tax processes an outcome of a negotiation process between winners and losers- business was hardly likely to welcome any new tax or increase, and would always present “alternative” scenarios; labour was unlikely to agree to choose between tough trade-offs (health versus old jobs versus new job opportunities); and key players were also absent during NEDLAC process (e.g. health academics, South African Federation of Trade Unions). On process, Treasury presented the draft policy document at NEDLAC for engagement in February 2017. NEDLAC agreed to convene a six-a-side task team to engage on this matter. The task team comprised of organised business, organised labour and government. However, other important stakeholders were not part of the process. A draft NEDLAC report was still to be signed-off by government.  

The primary objective of the NEDLAC task team was to engage on the potential socio-economic impact of the proposed tax on sugar-sweetened beverages. The task team sought to propose mitigation measures against the negative economic impact of the proposed tax, and take into account all health measures intended to address the non-communicable disease challenge. It was well understood that this would need to include appropriate policy measures as well as support from government for a transition away from over consumption of sugar. The social partners agreed on the following broad principles: that they would work together in a collaborative manner to address job losses and measures to mitigate job loss and to create jobs; they would also work together to address health issues.

In developing a jobs plan, the task team considered a motley of positions, these being: a Jobs Mitigation and Creation Plan (JMCP) proposed by government and involving a number of departments; a plan proposed by labour, as well as the health, economic and jobs plan proposed by business.

Jobs Mitigation and Creation Plan (JMCP) by government 

The Jobs Mitigation and Creation Plan (JMCP) consultation process involved stakeholders within and outside government. Its activation, implementation and monitoring would require: policy measures such as trade and agricultural supply side policies; institutions including the South African Bureau of Standards and Land Bank; stakeholders within government- including Treasury, Department of Agriculture, Forestry and Fisheries, Department of Labour and government entities; stakeholders in business- including the South African Sugar Association (SASA), Beverage Association of South Africa; labour representatives- COSATU and others. The Plan was to be developed and activated to address potential job loss as a result of implementation of the levy, and aimed to: prevent/ lessen job loss in the value chain; stabilise industries and employment in the value chain, create jobs, alternative employment, sustainable livelihoods and entrepreneurial opportunities in the value chain, as well as smoothen the transition and mitigate the negative impact of job loss. The Plan was to draw on commitments from all stakeholders including application of existing government measures, measures by business and specified actions by labour. Measures and commitments would need to take account of the full economic cost of the Health Promotion Levy (HPL). Interventions and commitments were required along the entire value chain which includes: sugar farmers (both large and small holder producers); millers, service providers to the sugar cane value chain; sugary beverage producers (both established and emerging/ smaller players); logistics, distribution and retail of sugary beverage products. The urgent interventions would be targeted for both the short and medium terms. To help facilitate the success of interventions, the NEDLAC task team recommended the establishment of a JMCP task team to develop specific, measurable, achievable, realistic and time-related (SMART) criteria that could be monitored and evaluated. The Department of Economic Development would convene the task team.

Short-term priorities after HPL implementation would include: holding position while adjustment begins to avoid major disruptions; trade remedies and tariffs to address the rapidly increasing levels of imports. Meeting commitments on sugary beverage reformulation, labelling, local procurement, audits and campaigns would begin. Priorities in the medium-term would include: supply and demand side measures to grow appropriate sub-sectors across the value chain and improving competitiveness; designation, local procurement, labelling and development of markets; development finance fund for land reforms and small scale farmers; investigating the viability and modalities of extending the insurance coverage to small holder sugar farmers; development of preferential export markets and ease of access thereto; alternative crop development; bioethanol production and cogeneration among others.

Mr Momoniat indicated that stakeholders put forward interventions for producers within the agricultural sector to: stem retrenchments; stem closure and associated job loss; lessen vulnerability; assist in finding alternate markets for sugar including direct and indirect markets; export support; address competitiveness as well as trade and funding support. Measures proposed included: amendment of the Labour Relations Act and Training Layoff Scheme; agro-processing scheme; funding and support from Land Bank and Ithala Bank; land reform programme recapitalisation and other support to export such as unblocking and identification of viable export markets; Illima/ letsema and land care grants; agro processing schemes, and extension and advisory services among other measures.

Commitments by stakeholders within NEDLAC

Mr Mpho Legote, Director: VAT, Excise Duties and Sub-National Taxes, Treasury, said stakeholders proposed health and education programmes in conjunction with business; to expand early childhood development centres with social development; partnering government on park gyms and big walks. Jobs would follow the extent of mitigation and appropriate measures will need to be defined. Labour unions committed to spearheading recruitment, monitoring, procurement and buy local campaign drives. The expectation was that initial implementation of interventions would be within the next quarter.  

The Economic Development Department (EDD) would host a sugar task team within two weeks whilst SASA would meet Treasury to unblock small holder famers’ access to the diesel refund scheme and present its draft safe guard/tariff applications. EDD would also identify small holder farmers and link them to Eskom for advisory services on electricity. Also, SASA would organise workshops in Mpumalanga and KZN, and government would co-host these on the following subject areas: presentation on the diesel refund scheme and comprehensive producer support policy. EDD would assist the beverages industry through hosting a beverage industry task group in the next three months in order to remove blockages which are contributing to operational inefficiencies and costs, and to facilitate increased local procurement including, inter alia: import duties on citric acid; cross-bordering green channelling of trucks; development of local wrapping; supply of phosphoric acid by local Broad-Based Black Economic Empowerment suppliers and supply of water and electricity.

Mr Legote pointed out that business had expressed concerns in a number of areas within NEDLAC. Business felt: the task team’s mandate was limited to only dealing with the consequences of HPL, and not HPL policy itself; that government’s JMCP required coordination and alignment across multiple government departments and agencies and if this was not achieved, measures proposed in this plan would not achieve intended outcomes; that proceeding with the levy would work against the National Development Plan (NDP) 14 outcomes. Business reiterated its call to have meaningful engagement on HPL policy in NEDLAC, including during the early stages of policy formulation. It did not agree that HPL should be implemented, and brought to the fore a proposal that it believed would achieve and exceed the required health objectives without job losses. In the event that the HPL was implemented, appropriate elements of job mitigation plan needed to be implemented ahead of the HPL becoming effective in order to maximise job retention. On the other hand, labour agreed with government on the obesity and health crisis and its relationship with the over consumption of sugar. However, it did not believe a tax in this economic climate was the correct intervention and hence proposed a phased-in approach to the tax that would give industry sufficient time to adjust and prepare.

In conclusion, Treasury believed the NEDLAC process had delivered an agreement, based on the fact that its main agenda was to mitigate job losses. An agreement was being completed in terms of NEDLAC protocols. Key to the agreement was the establishment of a new (non-NEDLAC) task team between key stakeholders to monitor and facilitate implementation of the jobs mitigation and creation plan in the entire value chain. Implementation should commence immediately and any further impact study that takes place should be after implementation to further target or refine the jobs mitigation and creation plans. Also, government had agreed to delay implementation of HPL till 1 April 2018 as it recognised that each step in the mitigation plan required the responsible department to implement, or to consider applications from affected parties when there were potential job losses. Further impact studies would be conducted after implementation to further target and refine mitigation strategies. Government also recognised that sugar industry was currently facing challenges that had nothing to do with the health promotion levy.

Mr Carrim asked for comments from stakeholders on the NEDLAC process. The stakeholders had to reach consensus as far as possible. Also, the committees were not legally obliged to stick to NEDLAC recommendations but it would be foolhardy not to take the recommendations into account.

Congress of South African Trade Unions (COSATU) input

Mr Matthew Parks, Parliamentary Coordinator, COSATU, appreciated the far-reaching public consultations afforded by the committees on HPL. COSATU would not want to collapse government efforts in trying to deal with non-communicable diseases. However, its members were frustrated by the shrinkage of job opportunities across all sectors. COSATU was trying to be constructive and sought a win-win outcome. It had come up with a package of measures to mitigate unintended consequences of the HPL. He acknowledged that government had already made concessions after considerable engagements. He urged industry to also come to the party and stick to the commitments on reformulation and local procurement. COSATU would want to see HPL revenue channelled towards funding public awareness and educational campaigns about the effects of too much sugar consumption. COSATU proposed, as a compromise, a phased-in implementation approach.

Beverage Association of South Africa (BevSA)

Mr Tshepo Marumule, General Manager, Beverage Association of South Africa, said BevSA was appreciative of the extensive deliberations both in Parliament and at NEDLAC. However, it cautioned against implementation of the levy before a full impact analysis was conducted. Job loss estimates had been based on the agricultural sector estimates and did not take into account the entire sugary beverage value chain. Also, industry was committed to product reformulation and supporting local industries. BevSA was a committed social partner and recognised the importance of both health and employment objectives. He urged government to monitor industry’s commitments to actual reduction of sugar content in beverages among other commitments, and to ensure there were no ‘free riders’. Industry was willing to work within the NEDLAC agreed framework and recommendations.

Healthy Living Alliance (HEALA) input

Ms Tracy Malawana, Coordinator at HEALA, said the NEDLAC process had been commendable. HEALA emphasised that implementation of the levy should not be delayed as 320 people were being diagnosed with diabetes on a daily basis and 10 000 cases of diabetes were being recorded every month in the country. South Africa was in a crisis and April 2018 might be too late.  The opportunity to protect communities should not be missed. It strongly believed the initially proposed 20% tax was going to have a greater and meaningful impact. Also, a recently published survey on public attitudes towards sugary drinks and support for government action suggested that 76% of South African adults agree that the government should pass and enforce policies that discourage the consumption of sugary drinks and junk foods. HEALA stressed the need for decisive action.

Discussion

Mr Carrim deplored the absence of the community chamber during the NEDLAC process. There had been some complaints about the absence of community representatives. It was not fair that labour, business and industry could have a say but the community was absent.

Mr Parks stated that the absence of a community chamber was espoused in the NEDLAC Act which governed its constitution. There were four chambers, namely trade and industry, public finance, labour and development. The challenge was with the NEDLAC Act, and the inclusion of a community chamber was a perennial debate.

Mr Carrim asked for comments from SASA.   

SASA said the sugar industry was on its knees. It referred the committees to a study on the impact of the HPL on jobs, attached as an annexure to a report submitted to NEDLAC.

Mr Carrim interjected noting that the said document should be presented before NEDLAC. Rehashing arguments and counter-arguments was unhelpful. He emphasised that public hearings on HPL had been extensive. The committees were now reaching the final stages of processing the Bill.

Ms Dunjwa said reopening the debate was not the way forward. At this stage, SASA’s study could be presented to Treasury and engaged at NEDLAC, not to the committees.

Dr P Maesela (ANC) said the committees were dealing with an industry producing ‘poison’. That the communities who were victims of same were not represented at NEDLAC was appalling- only people with vested interests were represented. People’s lives could not be traded off for menial jobs. He emphasised that Members were not advocating the banning of sugar, but taxing sugar beverages to reduce consumption. The discussion had to be balanced and lives should take precedence over profits.

SASA noted the mitigation strategies mooted by government and industry. However, the mitigation strategies must be equal to the impact of the tax on the industry. On measures to ensure the production of biofuels and cogeneration, these had extreme challenges and it was not clear whether they would mitigate the impact of the tax on the sugar industry. The sugar industry was on the verge of losing 20 000 jobs over the next five years and was looking into closing a number of mills. The sugar industry was on its knees. 

Ms T Tobias (ANC) appreciated industry’s commitment to reducing sugar content in beverages as pointed out by BevSA. However, the commitments had to implementable- not superficial and meant to appease those in disagreement with industry. Also, when phasing-in the levy, Treasury and the committees would need to consider taxing other beverages kept in abeyance, such as fruit juices. The Department of Trade and Industry must set the policy pace on industry commitments to local procurement, reformulation and repackaging. She suggested the inclusion of the jobs fund as part of the mitigation strategies. Also, the prospect of biofuel generation was not as far-fetched as it seemed and should be explored as part of a host of strategies to maintain the demand for sugar- diversification was key. She urged Treasury to acknowledge smaller players who might not be able to effect reformulation. Small players should be taken on board and not be left behind.

Mr D Hanekom (ANC) said he was immensely encouraged. A lot more had come out of NEDLAC than was expected. It was well understood that the health challenges related to overconsumption of sugary beverages should be addressed and, in the same vein, stakeholders would have to deal with attendant unintended consequences. He did not believe that introduction of the tax would affect sugary beverages industries because of the high level of substitution- the HPL sought to reduce sugar consumption. He welcomed the suggestion that industry commitments to reformulation be monitored by the South African Bureau of Standards. The tax was a soft measure and the jury was out as to whether it would in fact have the intended effects. Presented proposals were already a win-win because of the compromises already made, especially by the health sector. Measures to reduce sugar intake had to be taken seriously and introduction of the tax was necessary and had to be supported. NEDLAC must continue its engagements as it had already generated some good thinking.

Mr A Lees (DA) noted that the NEDLAC process had been lengthy and useful, and had resulted in commendable steps forward. The mitigation strategies from COSATU and other stakeholders were encouraging. He emphasised that the legislation dealing with biofuel production should be passed to enable the market to decide and determine whether it was viable. It was agreeable that excessive sugar consumption was bad for health and there was no need to rehash the arguments over and over. However, the committees had not gotten to grips with the costs and impact of the tax. It was disappointing that the Department of Health was not taking steps beyond HPL to reduce sugar intake- there was a broad spectrum of interventions to be taken. He asked Treasury where the tax was going to be imposed within the value chain. How was it going to be policed given the existence of unlicensed bottlers within communities?

Mr Carrim emphasised that the levy was only but one aspect of interventions towards the reduction of sugar consumption. That was well understood by most stakeholders. He asked Members to submit concrete proposals on interventions other than the levy which would be included in the final committees report.

Dr S Thembekwayo (EFF) lamented the absence of a community chamber, which would have included academics, during the NEDLAC process. Also, the ‘smooth transition’ to reduce impact of the levy on employment had to be articulated clearly by Treasury.

Ms Dunjwa said job losses due to ill health associated with non-communicable diseases had to be taken into consideration as well. Job loss arguments seemed to lay emphasis on jobs to be lost within the value chain and neglecting those already obtaining due to ill health. The arguments had to be balanced.

Mr Carrim asked when the NEDLAC agreement was going to be signed off. Also, government and other social players in civil society had not been able to exercise the muscle to implement previous blueprints. How would it be ensured that the NEDLAC commitments would be realised? Were there any stipulated deadlines? There had to be constant monitoring. He was taken aback by the extent of progress made by NEDLAC given the polarised atmosphere which characterised the hearings. Also, what was going to happen with other labour and civil society stakeholders outside NEDLAC? The committees had reached a point where political parties should meet and make formal positions, and could not do much more. However, the NEDLAC process should continue. He urged Treasury to narrow gaps and avoid dogmatic positions. He implored all stakeholders to take national interests into account.  

Mr Momoniat replied that as had been initially indicated, the NEDLAC process reached out to numerous stakeholders. The community covered a broad spectrum and a number of groups such as the Healthy Living Alliance (HEALA) had certainly been active and had engaged Treasury. The discussions were not much about whether there should be a levy but how high it should be and how to deal with the unintended consequences. Also, a host of interventions had been suggested during public hearings that would work in unison with the levy. More interventions were needed and the tax in itself would not be effective in isolation. He indicated that the NEDLAC agreement would be signed off on the day of the committees meeting.

Ms Tobias cautioned that small scale unlicensed sugary beverages producers might water down the effectiveness of the levy as their operations were unaccounted for. This would undermine objectives stakeholders sought to achieve. Treasury might need to consider taxing at distribution level as the issue was not only about revenue generation through the levy, but effects of excessive sugary beverage consumption on communities. Treasury must apply its mind at a later stage.

Mr Legote, in response, said the levy would be implemented using the duty-at-source principle- following other excise tax models. An administrative threshold would be determined to reduce clogging of the tax system. Treasury would ensure all sugary beverages were in its database. Once bottlers were registered and licenced, volumes and tax liabilities would be calculated. Also, government had made strong commitments towards investing in health promotions and was looking into increasing spend on same as part of the Medium Term Expenditure Framework formulation.

In closing, Mr Carrim asked political parties to broadly finalise their positions on the levy. The committees would then enter into the final stages of formal voting on the Rates Bill. The date of the next sitting on the levy could only be decided depending on whether parties were ready. There was no point of reconvening to rehash arguments. In the meantime, NEDLAC must continue negotiations as it was close to some degree of consensus. He reiterated that the issue was not about whether the levy should be implemented but how to mitigate the unintended consequences.   

The meeting was adjourned.