New sweet drink tax in focus
RESEARCH INDICATES THAT Finland, France, French Polynesia, Hungary, Mauritius, Samoa, Tonga and Mexico have all done it.
More than 30 American cities and states have tried to and failed – with Berkeley, California being one exception. Now, Barbados is on the verge of becoming the first Caribbean country to introduce a tax on sweetened beverages.
Featured prominently in Minister of Finance Chris Sinckler’s recent Budget “$200 million tax grab” was a “special” 10 per cent excise tax on “sweetened beverages such as carbonated soft drinks, juice drinks, sports drinks, and fruit juices” – items that contain “high calorie sweeteners”.
Sinckler also said that “beverages containing intrinsic sugars only, such as 100 per cent natural fruits juice, coconut water, plain milk, [and] evaporated milk will not be subject to the excise tax”.
The minister linked introduction of the tax – projected to provide Government with “in excess” of $10 million “this fiscal year – to the goal of steering Barbadians towards healthier drink choices, amid concern that the island was approaching “a national crisis with regards to persistent health problems associated with the escalating level of non-communicable diseases (NCDs)”.
It is estimated that 64 per cent of adult Barbadians are overweight and 31 per cent of children are obese or overweight.
As expected, however, questions have been raised about whether this tax is predominantly another way for the cash-strapped Freundel Stuart administration to raise money or if its introduction is genuinely for health reasons.
Some might say it is akin to killing two birds with one stone and that the population is unlikely to fuss about another tax if its imposition is seen as good for them in the long run.
But therein lies a problem. If the policy succeeds in helping Barbadians to make healthier beverage choices, it means that they would consume fewer sodas and sweet juices – hence Government would not reach its targeted “in excess” of $10 million in revenue “this fiscal year”. Since value added tax (VAT) is also imposed on these beverages, it would also meant that Government’s VAT’s revenue would be reduced.
Conversely, if Barbadian like sweet drinks so much and no amount of concessions stops them from paying 10 per cent more for them, then the policy would have failed one of its stated objectives – eventually helping to reduce the incidence and cost of NCDs.
Sinckler has promised that the tax “will be reviewed in two years time to determine how effective it has been in shifting the behaviours of both producers, importers and consumers as whether it should be extended or intensified”. Chances are that review might itself have to be reviewed sooner than that.
Is Government’s approach on this matter the best? Let us look at how others have been dealing with the issue, starting with Mexico where it is estimated that consumption of sugary drinks increased by more than 60 per cent per capita between 1989 and 2006.
In January last year, Mexico introduced a one peso (about seven United States cents) per litre tax on all sodas and other sugar drinks (the equivalent of a 10 per cent tax).
At the same time, the Mexican government imposed eight per cent tax on unhealthy drinks, as well as potato chips and cookies.
The Carolina Population Center rat the University of North Carolina and the Institute Nacional de Salud Publica conducted a study on how the tax on non-dairy and non-alcoholic beverages with added sugar performed one year after its introduction.
The data was gathered from a commercial panel of consumers with information on beverages purchases from households in 53 cities with at least 50 000 residents.
The research, which took account of any pre-existing downward trend of taxed beverages since 2012 and for macroeconomic variables that can affect purchases, found that there was “a six per cent average decline in purchases of taxed beverages” last year, compared to pre-tax trends.
“This difference accelerated over 2014 and the reduction compared to pre-tax trends reached 12 per cent by December 2014. All socio economic groups reduced purchases of taxed beverages. Reductions were higher among lower socioeconomic households, averaging a nine per cent decline over 2014 compared to pre-tax trends, and up to a 17 per cent decline by December 2014,” the study concluded.
“Results also show roughly a four per cent increase in purchases of untaxed beverages over 2014, mainly driven by an increase in purchased bottled plain water (tap water intake is not collected).”
Berkeley, California recently became the first United States city to institute a tax on sugar sweetened beverages, and it is estimated that its revenues from the first month of the tax was US$116 000.
Retailers have the option of passing the tax on to consumers.
There was no clear indication that the tax has reduced consumption. It is expected to generate US$1.2 million in revenue in its first year.
Dr Bruce Lee, director of the Global Obesity Prevention Centre at John Hopkins University was among those sceptics about sweet drink taxes, especially sodas, noting that such taxes would not necessarily lead to reduced consumption because drink companies “could reduce their prices and absorb the tax”. There was a suggestion that retailers could lower the cost of these popular sweetened drinks and pass that additional cost on to other items they sell.
Time will tell if Barbados’ sweet drink levy will achieve its dual goals: more revenue for Government and a healthier population.
It will also be important for much more information on the 10 per cent tax to be divulged between now and its August 1 implementation date.
This should include whether a percentage of the millions of dollars raised will be allocated to health programmes that would provide more meaningful encouragement in the effort to get Barbadians to adopt healthier lifestyles – including getting more exercise and eat nutritious meals.
The absence of such a policy statement was one of the shortcomings of the sweet drink tax policy Sinckler enunciated.