#Budget2017: How to offset sugary tax

Cape Town - Potential job losses from the proposed 11% sugary tax could be completely offset by supporting the sugar industry’s long standing requests for permission to co-generate and sell electricity to the grid, and possibly blend ethanol with transportation fuels.

This is the view of Wolfe Braude, a director at Emet Consulting.  

"The industry already cogenerates electricity for its own mills, it just isn’t allowed to sell to the grid. Permission would need to be enabled by creating regulatory frameworks for such economic activity. South Africa is in fact behind quite a few other sugar producing countries in its development of such a ‘triple-income stream’ for its sugar industry," explained Braude, commenting in his personal capacity.

"The multiplier effects in have been studied by NAMC and are positive. Ethanol is, however, vulnerable to the current low oil price. With such a plan in place it makes even more sense to press on with a sugar tax. Quite a few other countries have implemented sugar taxes, including Mauritius, which has a significant sugar industry. This is not a leap into the unknown. The benefits are massive."

It is estimated that Mexico may save $983m health costs over 10 years through its recent sugary tax. Taking population and per capita differences into account, SA could possibly save $100 to $150m, in his view.

BEPS

Braude also said in his post Budget 2017 comment that Minister of Finance Pravin Gordhan confirmed that automatic exchange of information between tax authorities will come into operation in September 2017.

Multinational companies will also be required to file further information with the SA Revenue Service (SARS) on cross-border activities from the end of the year.

"This is extremely significant, as it is estimated that hundreds, yes hundreds, of billions of rand are lost each year through misreporting, under-invoicing and declaring taxes untruthfully in other jurisdictions. By having access to both sides of the information coin for the first time, South African and foreign tax authorities will be able to follow the money trails," said Braude.

"The name given to such activities is apt - base erosion and profit shifting. It erodes the tax base and shifts profit earned out of range of national authorities. Given the desperate poverty many of our people live in, such fraudulent activities are not victimless crimes. Similar to the recent scandal around currency manipulation, it is believed that many famous local and foreign companies have been taking advantage of the absence of any multinational tax regulation, to rake in tens of billions in ‘tax-free’ earnings."

Social grants

Braude also looked at the references to social grants in Budget 2017.

“Much energy is devoted to criticising the expenditure on social grants in South Africa. Often it takes the form of criticising the work ethic of the recipients or the value-add of such expenditure. Globally, however, research has shown that social grants are among the most efficient forms of wealth transfer," said Braude.

"In spite of misconceptions, the reality is the grants support only those who are often unable to help themselves, the elderly, disabled, sickly, and children. They are often used by families to survive."

Braude said in SA's national situation of over 30% unemployment, it would make sense to view these grants as an essential part of SA's social compact, whereby the poor and vulnerable give the elites additional time to sort out the mess of the past and build a future.

"The expenditure makes good economic sense. The bulk in effect goes to consumption and circulates back into the economy,” said Braude.