Tuesday, May 17, 2016

As the public is by now no doubt aware, Finance Minister Pravin Gordhan announced in his 2016 budget speech that Treasury will be introducing a tax on sugar-sweetened beverages. Not only that, we have even been told an exact date, 1 April 2017, when this new category of excise tax will come into effect.

What is very strange, however, is that is about all anyone knows. We have been left in the dark about such important details as whether the tax will be levied at the consumer or manufacturer level, whether the tax will be indiscriminate or will correlate to the sugar content, and what exact beverages the tax will target. That is a lot of detail to work out in less than 12 months, not to mention ironing out issues around implementation.

Compare this to the UK Sugar Tax proposal which was announced by Chancellor Osborne in the UK Budget Speech less than a month after his South African counterpart.  Osborne went into detail as to how he envisioned the tax to work. He clarified that it will be levied at the manufacturer level, taxed according to two categories of sugar content, excludes boutique producers, pure fruit juice and milk-based beverages. He also assured the UK public that government would consult on implementation. What’s more, even with these details thought out, Osborne is still giving the UK legislature and beverage industry until April 2018 before the tax becomes effective, a full year longer than South Africa!

So, what light can we shed on this proposed tax from a South African legal perspective?
There are potentially several ways that Treasury could institute the Sugar Tax. The most consultative and transparent route would be by way of a full legislative process, which begins by the government department concerned with the matter publishing progressively more refined discussion documents, called Green and White Papers, that detail government’s policy considerations and thought processes, and opening them for comment by the public. Draft legislation is then prepared and considered by the Cabinet. The draft legislation is sometimes published in the Government Gazette or given to certain organisations for further comment. Once all comments have been considered, it is then introduced as a Bill in Parliament, the processes of which are set out in Chapter 4 of the Constitution. Bills that impose taxes, levies or duties, such as the proposed Sugar Tax, are distinguished by the Constitution as Money Bills, and can only be introduced by the Minister of Finance in the National Assembly.

The Constitution envisions a participatory democracy, wherein Parliament is transparent, accountable, and facilitates public involvement in the legislative process. In light of these principles, the more public comment proposed new laws benefit from, the better. However, there is no obligation on government to publish discussion papers or draft bills for comment, and they can, and often do, skip right to the consideration by Cabinet step, with minimal public engagement. The Constitutional Court has found that Parliament has broad discretion to determine how best to fulfil its constitutional obligation to facilitate public involvement in any given case, as long as it acts reasonably.
More worrying, however, is that there is another method that Minister Gordhan can potentially use to get his Sugar Tax on the statute books that circumvents the entire public engagement process.

The Customs and Excise Act of 1964 and its schedules contain all the other excise taxes and environmental taxes that are payable in South Africa. The schedules to the Act detail which products are taxed and by how much. Examples include: the environmental levy on plastic bags, the fuel levy, as well as excise duties on alcohol and tobacco products. It makes sense that a Sugar Tax would be instituted as an amendment to this Act.

Section 48 of the Act provides that the Minister of Finance may amend the tariff schedules “whenever he deems it expedient in the public interest to do so” by mere notice in the Government Gazette without going through any further legislative process. This is in fact how the levy on incandescent (electric filament) light bulbs was introduced in 2009. The new levy was announced in then Minister Manuel’s 2009 budget speech, and introduced by mere notice in the Government Gazette by then Deputy Minister Nene, in terms of section 48. No further legislative process was necessary or engaged in. This therefore provides Minister Gordhan with a speedy option to push through his Sugar Tax without a full legislative process that would normally involve layers of thorough and transparent consultation with industry and the public.

After much concern was expressed by industry around the lack of information and communication, it appears that certain industry bodies, such as the Beverage Association of South Africa, have managed to secure a meeting with Treasury towards the end of April. Other industry organisations and stakeholders, such as the Consumer Goods Council of South Africa, are still waiting for feedback on their requests to meet with Treasury.  Hopefully, these meetings will clarify some of the proposed details, and allay some of the concerns discussed in this article. The important thing is that the public and industry should be thoroughly engaged, as envisioned by the values enshrined in the Constitution. There should be no secret ingredients in a Sugar Tax proposal.

Virusha Subban, partner specialising in customs, excise and international trade, and Yonatan Sher, candidate attorney at Bowmans.