Crippling sugar tax sparks industry outcry

LIVINGSTONE MARUFU

Zimbabwe’s largest business lobby group, the Confederation of Zimbabwe Industries (CZI), has sounded the alarm over what it calls a crippling sugar tax, urging government to urgently review the levy and align it to regional benchmarks.

The industry warns that the tax is squeezing the beverages subsector, eroding competitiveness, and driving a surge in cheap imports that threaten to displace local products.

At the centre of the row is the sugar content surtax imposed on beverages, which CZI says is stifling compliant businesses and undercutting domestic manufacturers at a time when regional rivals enjoy more favourable tax regimes.

The lobby argues that the current structure is unsustainable and could hollow out one of Zimbabwe’s most visible consumer industries if government fails to move swiftly.

At the engagement with the Ministry of Industry and Commerce, CZI laid out its case, pointing to the Mid-Term Budget Review which highlighted the scale of the burden.

“The Mid-Term Review indicated that approximately ZWG803.1m was collected during the first six months of 2025. This translates to about US$30m or roughly US$5m per month based on average exchange rates over the period. This level of collection remains a burden on compliant businesses,” CZI chief executive officer, Sekai Kuvarika, said.

CZI has recommended that government cut the sugar tax rate to US$0.0005 per gramme from the current US$0.001 per gramme. It has also proposed an exemption for the first four grammes per 100ml of each beverage—a model the group says would bring Zimbabwe in line with regional best practice while still ensuring state revenues.

“This adjustment would still generate sufficient resources for the procurement of the envisaged equipment while significantly reducing the burden to beverage manufacturers,” Kuvarika explained.

The concerns are most pronounced in the beverages subsector, where companies say the surtax has become the biggest threat to viability.

Delta Corporation, Zimbabwe’s largest beverage maker, disclosed that it paid US$4.5m in sugar tax in the quarter ended June 30, 2025 alone—almost half of what some regional competitors pay in a year.

In a trading update, Delta company secretary Faith Musinga warned that the prevailing sugar tax continues to weigh heavily on sparkling beverages.

“Whilst the reduction of the sugar tax in January 2025 was a welcome relief, there remains a scope to align the tax to regional benchmarks and avoid the influx of imported variants and the unregulated use of artificial sweeteners. A total of US$4.5m on sugar tax was paid during the quarter ended June 30, 2025,” she said.

Musinga noted that soft drink performance remains subdued, pointing to the double squeeze of high input costs and a punitive surtax.

“The performance of the soft drinks remains subdued due to high sugar content surtax which has impacted price competitiveness and fuelled the influx of imports of similar products from the region, which is further compounded by rampant smuggling and the proliferation of the new unregulated beverage alternatives,” she said.

Industry executives say the combined effect of a high sugar tax and steep duties on sugar imports has created a wide price gap between Zimbabwean beverages and regional alternatives. This gap has opened the floodgates to foreign suppliers who are flooding the market with cheaper, often artificially sweetened drinks that escape the tax net.

“The beverages sector is losing value to cheaper imports and the emerging offerings with the unregulated artificial sweeteners driven in part by constrained operating conditions that limit local producers’ ability to compete on price,” Kuvarika said.

For Delta, the pressure is already visible in sluggish sales. Sparkling beverage volumes grew by only 2% in the June quarter compared to the prior year, growth largely sustained by price discounting.

“This performance was largely driven by price discounting with the Delta absorbing the sugar tax in anticipation of a much-needed reduction in the surtax level,” Musinga explained.

Industry analysts stress that Zimbabwe’s sugar tax regime is an outlier in southern Africa. In countries like South Africa and Zambia, sugar levies are either lower or structured to cushion local producers while nudging consumers towards healthier choices.

“There are notable price differentials versus the region driven by disparities in the cost of key inputs such as sugar import duties and sugar tax,” Musinga acknowledged.

The disparity has left Zimbabwean beverages more expensive on supermarket shelves, creating fertile ground for smuggled products and cross-border imports. The result, analysts warn, is a distorted market where compliant producers are both overtaxed and undercut.

For government, the sugar tax has been a double-edged sword—delivering a steady stream of badly needed revenue while triggering unintended consequences.

Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube recently acknowledged the industry’s concerns, signalling possible adjustments in the forthcoming fiscal plan.

He said government was considering reconfiguring the sugar tax to ease pressure on manufacturers while safeguarding public health goals.

Beyond the headline numbers, insiders warn that the levy has become a drag on investment, innovation, and consumer choice. Some firms have slowed expansion plans and delayed product launches due to uncertainty. At the same time, the rise of unregulated sweetener-based beverages, often imported informally, poses both health risks and commercial threats.

For consumers, this has created a bifurcated market: higher-priced formal beverages on one side, and a flood of cheaper, lower-quality imports on the other.

Analysts caution that if the trend persists, local producers risk losing significant market share, undermining decades of investment.

CZI has been careful to stress that it is not opposed to sugar taxes in principle, but is calling for a balance between fiscal needs and industrial survival.

“Aligning the sugar tax to regional benchmarks will not only preserve industry competitiveness but also protect jobs and consumer access to affordable beverages,” Kuvarika emphasised.

Until then, the beverages subsector remains caught in the crossfire—paying what it calls a crippling levy while fending off smuggling, imports, and unregulated substitutes.