Zimbabwe’s Beverage Industry Faces Collapse Due to Sugar Tax

How a controversial tax measure could affect the economy and health of Zimbabweans

by Motoni Olodun

Zimbabwe’s government has introduced a new tax on sugar content in beverages, which could have devastating consequences for the local drinks industry. The tax, which came into effect in January 2024, aims to discourage the consumption of high-sugar drinks and raise funds for cancer equipment and treatment. However, critics say the tax is too high and will make beverages unaffordable for consumers and unprofitable for producers.

According to the Confederation of Zimbabwe Industries (CZI), the tax will add US$1.6 billion in annual costs to the beverage sector, which uses about 7,000 metric tonnes of sugar per month. The tax is set at US$0.02 per gram of sugar contained in beverages, excluding water. This means that a kilogram of sugar will pay a tax of US$20, while a metric tonne of sugar will pay a tax of US$20,000, at a time when a metric tonne of sugar only costs US$900.

“This proposed levy is extremely high, and will see beverages being not affordable to consumers,” CZI said in a paper submitted to the government in December 2023. “To paint a clear picture, the introduction of the 2 cents per gram levy will increase the cost of final beverage products by an average factor of six times, factoring in VAT (value added tax) and retail margins.”

CZI gave some examples of how the tax would affect the prices of popular drinks. A two-litre bottle of Mazoe cordial juice, which currently sells for US$2.80, would cost US$21 after the tax. A 300ml bottle of Coke, which currently sells for US$0.25, would cost US$1.10. A bottle of Pfuko Maheu, a traditional fermented drink, which currently sells for US$0.50, would cost US$3.40.

“The magnitude of these price increases will drive the beverage sector out of business,” CZI warned.

The tax would also open up the market to cheaper imports from neighboring countries, such as South Africa and Zambia, where similar taxes are much lower or non-existent. This would undermine the local industry, which employs thousands of workers and supports local farmers and suppliers.

The tax is part of a series of measures introduced by Finance, Economic Development, and Investment Promotion Minister Mthuli Ncube in the 2024 national budget, which also includes a wealth tax, a carbon tax, and a digital services tax. Ncube said the tax reforms were meant to broaden the tax base, promote fiscal sustainability, and support social services.

However, the tax measures have been met with widespread resistance and criticism from various stakeholders, who say they are counterproductive, regressive, and harmful to the economy. Some of the measures have been revised or abandoned after consultations, such as the wealth tax, which was scrapped after CZI argued that it would discourage investment and wealth creation.

The sugar tax, however, remains in place, despite the appeals from the beverage industry and consumer groups. Ncube said the tax was justified by the health benefits of reducing sugar consumption, which is linked to increased risk of non-communicable diseases, such as diabetes, obesity, and cancer. He said the funds raised from the tax would be ring-fenced for procuring cancer equipment for diagnosis and therapy, which are currently scarce and expensive in the country.

According to the World Health Organization, Zimbabwe has one of the highest rates of cancer in Africa, with over 7,000 new cases and 4,000 deaths per year. The main types of cancer affecting Zimbabweans are cervical, breast, prostate, and colorectal cancer. The lack of adequate screening, prevention, and treatment services, as well as the high cost of drugs and equipment, contribute to the high mortality rate.

Ncube said the sugar tax was in line with the global trend of implementing health-related taxes, which have been adopted by several countries, including some in the Southern African Development Community (SADC) region, such as Botswana, Mauritius, and Zambia. He said the tax would also help to reduce the import bill for sugar, which amounted to US$40 million in 2023.

However, some health experts have questioned the effectiveness and fairness of the sugar tax, saying it is not enough to address the complex and multifaceted problem of non-communicable diseases. They argue that the tax should be accompanied by other interventions, such as public education, regulation of food and beverage marketing, promotion of physical activity, and improvement of health care services.

They also point out that the tax is regressive, meaning that it disproportionately affects the poor, who spend a larger share of their income on food and beverages. They say the tax could worsen the food insecurity and malnutrition situation in the country, where over 60% of the population lives below the poverty line and over 40% faces chronic hunger, according to the World Food Programme.

The sugar tax debate reflects the broader challenge of balancing economic and social objectives in a country that is facing multiple crises, such as hyperinflation, currency instability, debt distress, power shortages, corruption, human rights violations, and political unrest. The government has been implementing a series of reforms under the Transitional Stabilisation Programme, which aims to restore macroeconomic stability, reengage with international creditors, and revive economic growth.

However, the reforms have also been blamed for causing hardship and suffering for the majority of Zimbabweans, who have seen their incomes eroded, their living standards deteriorate, and their access to basic services decline. The Covid-19 pandemic has added another layer of complexity and uncertainty to the situation, as the country struggles to contain the virus and its impact on the health system and the economy.

Despite the challenges, some analysts and observers remain optimistic that Zimbabwe can overcome its difficulties and achieve its potential, if it adopts the right policies and practices, and if it receives the necessary support and cooperation from the international community. They say the country has many strengths and opportunities, such as its rich natural resources, its skilled and resilient population, its strategic location, and its potential for regional integration and trade.


Source: Zimbabwe Situation

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