There has been a lot of talk about taxes in the media recently mainly centred on two proposals – a “wealth tax” and “junk food tax.” The wealth tax has been covered extensively but the debate about a fast food tax has yet to be adequately digested. Before we analyse the merits (or lack thereof) of the proposed fast food tax, it is important to note the different types of taxes and why taxes are imposed. Broadly speaking there are two types of taxes: direct and indirect taxes. Direct taxes, such as personal and company taxes, are paid directly to government, whereas indirect taxes are collected on behalf of the government by intermediaries, such as retail outlets, and paid over to government at a later date. The most common form of indirect taxation is VAT.
Most indirect taxes are stealthily applied to certain goods and services and citizens may not even be aware that their purchases include tax. Such taxes are not easily identifiable and are typically referred to as ‘soft taxes’ because the government can easily impose them without the public knowing. Prime examples are fuel levies and the so-called sin taxes, which are levied on alcohol and tobacco products in order to raise their price, supposedly to deter people from buying their favourite tipple or cigarette. Everyone in SA therefore pays tax – whether or not they know it.
There is a basket of 19 basic food items that are “zero-rated goods”, which government considers to be necessities and on which we consequently don’t pay VAT. These include items such as bread, milk, eggs, maize meal, fruit and vegetables. Apart from basic foods we also do not pay VAT on exports, farm inputs and a few other items such as public roads and rail transport and educational services provided by an approved education facility.
It is easy to lose sight of the purpose of taxes, which are typically raised for one of two reasons or a combination of these reasons: either to raise revenue for government coffers or to raise the price so as to reduce the demand for a good or service. For example, goods from other countries are either taxed to raise revenue or to raise the price of the goods and thus make them less attractive to consumers than a domestically produced equivalent. In the latter case the purpose of the tax on imports is to protect local manufacturers from foreign competition – we call this particular tax a ‘tariff’ or ‘import duty’. Tariffs like VAT and sin taxes are a form of indirect tax.
Proponents of fast food taxes argue that fast foods are bad for consumers (pun intended) and thus should be taxed in order to deter people from eating them. But fast foods are there for a reason – the primary reason, as the name aptly suggests, is because we can access them quickly in a convenient fashion. This allows us to free up time in order to participate in other activities, such as earning a living, child-minding or even exercising. So how often do South Africans eat ‘junk food’?
According to the All Media and Products Survey (AMPS), when South Africans were asked the question, “How often do you usually buy food from a Fast Food Outlet”, less than 1 per cent of the total population said that they buy fast food on a daily basis. Approximately 10 per cent said they purchased fast food once every two to three weeks and just under one-third (31.21%) said that they only purchased fast food once a month. Approximately one-fifth (20.4%) said that they had never purchased food from a fast food outlet. NEVER! This means that in a room of 100 people, less than one person buys food from a fast food outlet on a daily basis, 10 people buy fast food once every two to three weeks and 20 have never bought fast food. The rest of the people mainly buy fast food once in every two to three months (9.19%), once a week (8.21%), less than once every 6 months (6.02%) and the remainder total less than 6 per cent. The point is that we are hardly a fast food junkie nation.
Taxing fast food is a blunt instrument and apart from treating adults like children it diverts attention from the real elephant in the room, which is government’s insatiable appetite for raising revenue by any and every means possible. The really unhealthy appetite is to be found in the taxer and not those consumers of fast foods who are threatened with another undeserved so-called “sin” tax.
By Jasson Urbach
An economist with the Free Market Foundation. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.