Soft drinks giants raise alarm over sugar tax hike

MAJOR soft drinks companies targeted by the government's budget proposals that seek to hike import duty on industrial sugar have warned that the move could jeopardise thousands of jobs and threaten the survival of the industry that has invested over 800billion in the past three years.

Analysts said prices of soads, juice and other soft drinks and the industry's operating costs were likely to significantly shoot up if the 2016/17 budget measure announced by Finance and Planning Minister Philip Mpango in parliament last week is implemented come July 1.
The government plans to raise import duty on industrial sugar by 5 per cent in fiscal year 2016/17 to 15 per cent and hike it further to 20 per cent (2017/18) and 25 per cent in (2018/19).
“The current duty rate of 10 per cent undermines local production and promotes importation of the product and abuse in the usage of the product,” Mpango said in his budget speech.
However, soft drinks giants in the country have warned that the tax hike is counter-productive and would undermine the grown of local manufacturing capacity.
They said there was no way whatsoever that Tanzania's sugar producers could start manufacturing industrial sugar locally in less than 5 years to meet demand of soft drinks industries, given the fact that they can't even meet demand of domestic sugar.
Tanzania consumes 420,000 tonnes of raw sugar for domestic use and 170,000 tonnes of industrial sugar per year.
However, local sugar producers currently have capacity to produce around 300,000 tonnes of raw sugar per year, meaning that the deficit has to be filled by imports of foreign sugar.
Apart from soft drinks makers, the tax will also hit producers other beverages, confectionery and dairy products.
Speaking to The Guardian in separate interviews, the carbonated drink manufacturers maintained that the argument given by the government that it wants to protect local factories is unjustified as no local manufacturer can currently produce industrial sugar.
Avinash Jha, the chief executive officer of SBC Tanzania, makers of Pepsi products, warned that the planned import duty increase will negatively affect production since refined industrial sugar is one of the major and most costly raw materials in production.
“How can the government try to protect industries that are not producing industrial sugar? These factors are groundless and unrealistic,” he said.
Jha urged the government not to increase the import duty on industrial sugar as soft drink manufacturers do not intend to raise prices of their products.
Likewise, Basil Gadzios, managing director of Coca-Cola Kwanza Limited, appealed to the government to rethink the decision.
“Refined industrial sugar is the key raw material used in our production process ... increasing import duty by five percent every year will not only slow our businesses, but also threaten our future investments,” he said
He said representatives of soft drinks companies in Tanzania were now seeking audience with the Prime Minister, Kassim Majaliwa, and Finance Minister Mpango to explain the adverse effects the move would have on their business.
“We aim to make our products affordable to Tanzanians,” he said adding that the increase of import duty would be a burden to the industry and consumers.
Gadzious noted that the country's soft drinks industry had invested over 800bn/- in the past three years alone in the expansion of production capacity in Mwanza, Arusha, Dar es Salaam and Kilimanjaro regions. This expansion has created thousands of new jobs and raised government revenue collection.
The head of corporate affairs of Bakhresa Group, Hussein Sufiani, similarly questioned the ability of local sugar producers to meet demand for industrial sugar.
He said it was not fair for the government to hike taxes on a key raw material as manufacturers are still required to pay multiple taxes such as excise duty, value added tax (VAT) and corporate tax.
“The tax increase will negatively affect the industry ... and when production costs are too high, we will ultimately be forced to reduce the number of workers,” he said
The vice chairman of the Confederation of Tanzania Industries (CTI), Jayesh Shah, said the planned tax increase will negatively impact local soft drink producers.
“Why has the government rushed to increase these charges because other East African Community (EAC) member countries, such as Kenya, Uganda, Rwanda and Burundi have postponed the increase for one year to allow stakeholders to discuss the matter further?” He said.
The move to increase import duties on industrial sugar was made jointly by EAC finance ministers. But while other neighbouring countries opted to deliberately delay implementation of the move until they build local production capacity, Tanzania chose to prematurely go it alone, analysts said.
Shah noted that Tanzania's four local sugar producers cannot supply industrial sugar to the carbonated drink manufacturers as they have so far failed to even meet the country’s domestic sugar demand.
“There is a deficit of sugar in the market today due to poor supply from local producers. They just simply cannot be able to produce an extra 130,000 tonnes of industrial sugar”, said Shah.