South Africa’s Sugar Tax System: A Taxation Perspective by Marese Lombard (2007006600) Submitted in fulfilment of the requirements for the degree Master’s degree in Accounting with specialisation in Taxation in THE SCHOOL OF ACCOUNTANCY FACULTY OF ECONOMIC AND MANAGEMENT SCIENCES UNIVERSITY OF THE FREE STATE BLOEMFONTEIN JULY 2018 Study leader: Prof. Alta Koekemoer TABLE OF CONTENTS LIST OF FIGURES ............................................................................................................................... vi LIST OF TABLES ................................................................................................................................. vi LIST OF ABBREVIATIONS ............................................................................................................... vii ABSTRACT ......................................................................................................................................... viii ACKNOWLEDGEMENTS ................................................................................................................... ix DECLARATION .................................................................................................................................... x CHAPTER 1: INTRODUCTION AND BACKGROUND 1.1 BACKGROUND AND MOTIVATION ............................................................................... 1 1.2 PROBLEM STATEMENT.................................................................................................... 5 1.3 OBJECTIVE OF THE STUDY ............................................................................................. 5 1.4 RESEARCH QUESTIONS ................................................................................................... 5 1.5 RESEARCH OBJECTIVES .................................................................................................. 6 1.6 LIMITATIONS ..................................................................................................................... 6 1.7 ASSUMPTIONS ................................................................................................................... 7 1.8 STRUCTURE OF THE STUDY ........................................................................................... 7 1.9 RESEARCH DESIGN AND METHODS ............................................................................. 9 1.10 DATA-COLLECTION STRATEGY .................................................................................. 12 1.11 QUALITATIVE RIGOUR .................................................................................................. 13 1.12 ETHICAL CONSIDERATIONS ........................................................................................ 13 1.13 CONCLUSION ................................................................................................................... 14 CHAPTER 2: MODERN TAX PRINCIPLES CONSIDERED IN RESPECT OF A SUGAR TAX SYSTEM 2.1 INTRODUCTION ............................................................................................................... 15 2.2 TAX PRINCIPLES: THE DEFINITION ............................................................................ 15 2.3 THE HISTORY OF TAX PRINCIPLES ............................................................................ 16 2.4 COMPILATION OF THE MOST POPULAR TAX PRINCIPLES ................................... 17 2.4.1 Equity and fairness ...................................................................................................... 20 2.4.1.1 Adaption of general tax principles of a good tax system to be applicable to a sugar tax system: Equity and fairness ..................................................................... 24 i 2.4.2 Simplicity and certainty .............................................................................................. 26 2.4.2.1 Adaption of general tax principles of a good tax system to be applicable to a sugar tax system: Simplicity and certainty ............................................................. 28 2.4.3 Efficiency and low administration costs ..................................................................... 29 2.4.3.1 Adaption of general tax principles of a good tax system to be applicable to a sugar tax system: Efficiency and low administration costs .................................... 30 2.4.4 Transparency and accountability ................................................................................ 32 2.4.4.1 Adaption of general tax principles of a good tax system to be applicable to a sugar tax system: Transparency and accountability ............................................... 34 2.5 CONCLUSION ................................................................................................................... 34 CHAPTER 3: COMPARATIVE ANALYSIS OF INTERNATIONAL SUGAR TAX SYSTEMS 3.1 INTRODUCTION ............................................................................................................... 36 3.2 A BRIEF HISTORY AND WORKING OF SUGAR TAX SYSTEMS ............................. 36 3.3 STATUTORY REQUIREMENTS AND POLICY DESIGN TYPES ................................ 38 3.3.1 Design type 1: Flat levy on all SSBs .......................................................................... 40 3.3.1.1 France ..................................................................................................................... 41 3.3.1.2 Barbados ................................................................................................................. 42 3.3.1.3 The United States of America (USA) ..................................................................... 43 3.3.1.4 Mexico .................................................................................................................... 44 3.3.1.5 Belgium .................................................................................................................. 44 3.3.2 Design type 2: Tax each gram of sugar contained in the product ............................... 45 3.3.2.1 Hungary .................................................................................................................. 45 3.3.2.2 Finland .................................................................................................................... 46 3.3.2.3 Pacific Island countries and territories (Samoa, Nauru, Fiji, Cook Islands, French Polynesia, American Samoa, and Tonga) ................................................... 47 3.3.2.4 Portugal .................................................................................................................. 48 3.3.2.5 Norway ................................................................................................................... 49 3.3.2.6 Mauritius................................................................................................................. 49 3.3.3 Design type 3: Tax-free minimum sugar threshold .................................................... 50 3.3.3.1 Chile ....................................................................................................................... 51 3.3.3.2 Ireland ..................................................................................................................... 51 3.3.3.3 United Kingdom (UK) ............................................................................................ 52 3.3.4 Key design elements of international sugar tax systems ............................................. 53 ii 3.4 COMPARATIVE ANALYSIS OF INTERNATIONAL SUGAR TAX DESIGNS ........... 53 3.5 IMPACT OF THE PRINCIPLES OF A GOOD SUGAR TAX SYSTEM ON THE KEY ELEMENTS OF A GENERAL SUGAR TAX SYSTEM ......................................... 58 3.5.1 Impact of the principles of a good sugar tax system on a general sugar tax system’s key element: Design type ............................................................................. 59 3.5.1.1 Equity and fairness ................................................................................................. 59 3.5.1.2 Simplicity and certainty .......................................................................................... 62 3.5.1.3 Efficiency and low administration costs ................................................................. 62 3.5.1.4 Transparency and accountability ............................................................................ 63 3.5.2 Impact of the principles of a good sugar tax system on a general sugar tax system’s key element: Taxable unit ............................................................................ 64 3.5.2.1 Equity and fairness ................................................................................................. 64 3.5.2.2 Simplicity and certainty .......................................................................................... 65 3.5.2.3 Efficiency and low administrative costs ................................................................. 65 3.5.2.4 Transparency and accountability ............................................................................ 65 3.5.3 Impact of the principles of a good sugar tax system on a general sugar tax system’s key element: Tax base .................................................................................. 65 3.5.3.1 Equity and fairness ................................................................................................. 65 3.5.3.2 Simplicity and certainty .........................................................................................