The sugary beverages industry in South Africa is bracing itself for potential impacts as the South African Revenue Service (SARS) intensifies its focus on compliance among manufacturers.
SARS is now targeting businesses involved in the manufacturing of sugary beverages, with the revenue collector saying manufacturers of sugary beverages must be registered as commercial manufacturers if they use more than 500kg of sugar in their manufacturing process.
Professionals from Shepstone & Wylie Attorneys, Erasmus Theron and Herman de Jong, on Tuesday said the government was facing a daunting tax deficit following the vacuum left by an unchanged sugar tax amidst rampant fiscal constraints.
They said that with an ambitious revenue target of R2.006 trillion set for the 2025/2026 tax period, the government has turned towards indirect taxes—specifically excise duties, fuel levies, and carbon taxes—as keystones to bridge the financial gap caused by failed proposals to increase the Value-Added Tax (VAT) rate.
“Although the failure to increase sugar tax for the third consecutive year could be viewed as indicative of the fact that the importance of sugar tax is being diluted from a fiscal and health policy perspective, current experience, to the contrary, tends to indicate an increased focus by SARS on manufacturers’ compliance within the sugary beverages industry,” they said.
The South African sugary beverages market for 2025 is estimated at R57 billion, which is a major contributor to the country’s gross domestic product (GDP) through direct manufacturing, job creation, and distribution activities within the formal and informal sectors.
In the 2024 tax year, the HPL contributed over R2.306 billion to the fiscus, which is less than the initial R2.446bn collected at the inception of the Health Pomotion Levy regime during the 2019/2020 tax period.
“Although the reduced contribution to the fiscus could be attributed to reformulation strategies by manufacturers and lobbying activities by the sugar industry, it is also important to note that since the inception of the HPL regime, SARS’ focus on compliance within the sugary beverages industry has been limited when compared to other industries such as the alcohol, tobacco, and petroleum industries,” Shepstone & Wylie Attorneys said.
However, Shepstone & Wylie Attorneys said this appears to be changing.
The attorneys said there has been a noticeable increase in SARS queries and audits at sugary beverage manufacturers over the past 12 months.
Chris Engelbrecht, chairperson of the Association of Southern Africa Sugar Importers (ASASI), said on Tuesday that this was concerning for the entire sugar industry.
“It’s worrying that the government could be looking for more ways to collect revenue and conducting these audits could be a way to collect revenue. The beverage industry may be doing well but the sugar industry has its challenges especially with Ilovo Sugar and Huletts,” he said.
Engelbrecht added if the manufacturing process was affected in sugar beverages it could lead to loss of profit.
“When there is a loss of profit it can lead to job losses and in South Africa we have high unemployment so this is something we don’t want to see. The other factor is when the manufacturing of sugar products is affected. It has a ripple effect on sugar cane farmers due to less demand which will affect their operations.”
SA Canegrowers said that they were concerned about the situation and felt the sugar industry already faces challenges with the sugar tax.
“The sugar tax has been nothing but destructive for South Africa. Ultimately, we believe that the [National] Treasury should scrap the tax, to help ensure that the government drives job creation and economic growth, as per its commitments outlined in the Sugarcane Value Chain Master Plan 2030.”
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