Experts divided over Govt’s sin tax strategy

The 2025 National Budget has introduced an array of “sin taxes,” signalling the Government’s intent to not only reshape consumption habits of Zimbabweans but also boost funding for critical sectors like healthcare.

Announced by the Minister of Finance, Economic Development, and Investment Promotion, Professor Mthuli Ncube, these measures include levies on fast foods, sports betting winnings and adjustments to an existing sugar tax.

“We must embrace innovative approaches to broaden our tax base while addressing the social and health challenges we face,” said Mthuli during his budget presentation.

“Taxes on products that contribute to non-communicable diseases and gambling-related issues provide an opportunity to align fiscal policy with public health objectives.”

Mthuli pointed to the success of the sugar tax introduced in 2024, which applied a modest surtax of US$0,001 per gramme on added sugar in beverages. According to the Minister, this levy in conjunction with the airtime levy generated significant revenue, enabling the Government to mobilise ZiG4.1 billion for healthcare.

A portion of this funding has been used to purchase critical medical equipment, which he said, has already started improving service delivery in under-resourced hospitals.

Building on that success, the Government has now adjusted the sugar surtax on cordial concentrated beverages from US$0.001/g to US$0.0005/g, effective January 1, 2025. This revision aims to level the playing field between cordials and ready-to-drink beverages while maintaining the revenue stream for health interventions.

Dr Shaun Macheche, a medical practitioner, lauded the sugar tax, calling it a lifesaver in more ways than one.

“Non-communicable diseases like diabetes and heart conditions are on the rise, largely due to poor dietary choices. Taxes on sugar not only discourage excessive consumption but also provide much-needed resources to improve our healthcare infrastructure,” Dr Macheche explained.

The introduction of a 10 percent withholding tax on gross sports betting winnings marks another bold move. Currently, bookmakers are taxed on their gross takings, but winnings have remained outside the purview of personal income tax. This new measure, effective January 2025, will require both in-house and online bookmakers to withhold taxes on behalf of the Government.

“Betting has grown exponentially, with a significant proliferation of sports betting houses,” Mthuli noted. “We must ensure that this industry contributes fairly to national development.”

Economist, Tinevimbo Shava, highlighted the potential windfall of this tax, citing the sector’s rapid expansion.

“While gambling is often criticised, its popularity provides an untapped fiscal opportunity. Taxing winnings ensures that the Government benefits from this growing market, without stifling its potential.”

Critics have argued that the tax could discourage betting, particularly among small-scale punters. However, Shava dismissed these concerns, pointing out that the measure is aimed at fairness.

“If other forms of income are taxed, why should gambling winnings be exempt? This is about broadening the tax base, not penalising individuals,” he said.

The Fast Foods Tax, another key element of the budget, targets popular menu items like pizza, burgers, fries and doughnuts, imposing a 0,5 percent levy on their sales value. This move, according to Mthuli, addresses the growing prevalence of obesity and related health conditions, which he said place a significant burden on the healthcare system.

“Highly processed foods are a significant factor in the rising incidence of non-communicable diseases. The modest tax on these items promotes healthier eating habits and provides additional revenue for public health initiatives,” he explained.

Dr. Prosper Chitambara, an economist specialising in sustainable development, praised the measure as an innovative way to align taxation with public health goals.

“This is a classic case of Pigouvian taxation using economic incentives to discourage harmful consumption while funding interventions to mitigate their impact. The revenue can be used to enhance health services, such as purchasing diagnostic equipment or funding nutrition education campaigns.”

However, Chitambara warned that the tax’s success hinges on transparency and accountability in its implementation. “Ring-fencing the revenue for health interventions is crucial. Citizens need to see tangible benefits from these taxes, or the policy risks losing public support.”

While the new sin taxes have been broadly welcomed by public health advocates and economists, concerns remain about their potential impact on lower-income households. Fast foods and sugary beverages, though unhealthy, are often more affordable than healthier alternatives. Similarly, betting provides a form of entertainment for many in economically marginalised communities.

Dr Macheche emphasised the need for complementary policies. “Taxes alone will not change behaviour. We need public awareness campaigns, subsidies for healthy foods and improved access to recreational facilities. It is about creating an environment where healthier choices are easier and more affordable.”

Mthuli assured that the Government is mindful of these challenges.

“Our aim is not to punish the public but to encourage responsible consumption. We are committed to reinvesting these revenues into programs that benefit all citizens, particularly the most vulnerable.”

The introduction of these sin taxes marks a shift in Zimbabwe’s fiscal policy, reflecting a broader trend toward leveraging taxation as a tool for social change. While some might view these measures as overreach, many see them as a necessary step to address pressing health and economic issues.

As economist Tinevimbo Shava concluded, “Tax policy must evolve to meet the needs of our society. These measures are not just about raising revenue they are about shaping a healthier, more equitable future. The challenge now is ensuring that the funds raised are used effectively to achieve these goals.”

The Treasury’s hunt for revenue may come at a cost to consumers, but if executed well, it could yield dividends for the nation’s health and development. Time will tell whether this gamble pays off or whether the sin taxes themselves need reform.-bnessweekl