Business welcomes sugar tax reduction

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Captains of industry and commerce in the beverages sector have welcomed the downward review of the sugar tax from US$0,002 to US$0,001 per gramme of sugar, saying the adjustment will lessen the cost and financial burden associated with the new tax.

Finance, Economic Development, and Investment Promotion, Professor Mthuli Ncube last week gazetted Statutory Instrument (SI) 16 of 2024 on levy of special surtax on beverages sugar content, reflecting the downward review from the initially announced levy.

This provided legal guidance on exactly how much will be levied on sugar content within beverages, and officially announced a marked reduction of the levy from the 0,002 cents per gramme the minister initially announced in the 2024 national budget statement last November.

The initially proposed tax rate on the sugar content would have meant that just the tax on sugar would be higher than the cost of the contents of all beverages with high sugar input.

According to the Treasury, the special surtax on the sugar content in beverages shall only be levied on added sugar.

The latest downward adjustment, recently gazetted after negotiations between the Government and the Confederation of Zimbabwe Industries (CZI), comes as a huge relief to businesses already grappling with several challenges.

Among the industry leaders that had responded to the sugar tax was Schweppes Zimbabwe, which effected two price adjustments since the tax was announced by Minister Ncube last year. It has been among companies calling for a review of the tax.

Initially, Schweppes increased prices for a 2Lx6 pack of the popular Mazoe cordial by 17 percent and recently further hiked the price further to US$24 for the same pack, sparking an outcry from the market over possible profiteering.

Shweepes said the tax, introduced via Statutory Instrument 16 of 2024, had a significant impact on its Mazoe drink compared to ready-to-drink products, given it is calculated based on per gramme contained instead of the global norm of per millimeter.

“Unlike VAT, the sugar tax is a cost to the business, whose funding carries the cost of money. In the beverage industry, supply to formal retailers and wholesalers comes with longer payment terms. The effect is strain working capital, as the tax has to be paid before customers have paid,” Schweeppes said.

Two industry executives, speaking on condition of anonymity, shared their sentiments on the development.

“We are pleased that the gazette has finally come through. Since the agreement in January to reduce the sugar tax, we have been in limbo, unsure of when the recommendations would be implemented. This clarity is a welcome relief for our operations,” said one of the sources.

Another industry executive stated “The correction of the sugar tax is a positive step towards alleviating the financial burden on businesses. It demonstrates a willingness from the government to collaborate with industry stakeholders and address concerns that directly impact our bottom line.”

However, economists and accountants caution that while the reduction in the sugar tax is beneficial, there still are some associated costs that businesses must contend with.

Accountant Oliver Nangi said “Businesses will need to invest resources into adapting to the revised tax structure. From recalibrating accounting software to training staff on new procedures, these adjustments come with financial implications”.

The implementation of the corrected sugar tax underscores the intricate balance between fiscal policies and industry competitiveness.

While the reduction is a step in the right direction for businesses, the broader economic implications must be carefully considered. As industry players navigate the evolving landscape, collaboration between the public and private sectors remains vital in fostering sustainable growth and development.

Other economic analysts noted that while the review of the sugar tax brought much-needed relief and clarity to the business community, it also highlighted the need for comprehensive planning and coordination to mitigate potential adverse effects on consumers.

Moving forward, ongoing dialogue and cooperation between government officials, industry leaders, and economic experts will be crucial in shaping policies that promote both fiscal responsibility and economic prosperity. – Herald