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Taxes on fizzy drinks

December 21, 2015 Leave a comment Go to comments

With the increase in bulging waistlines and the rise in diabetes governments have been implementing taxes on surgary drinks to overcome this negative externality of consumption. The list of governments includes the following countries:

Hungary – in 2011 a tax on products with a high sugar content. The tax was calculated on the turnover of the company and the percentage of sugar per 100g of the product. Hungarian confectioners must pay the health tax on top of a 27% value added tax.

France – in 2012 a tax on all drinks with added sugar or artificial sweetener – US$0.08 per litre.

Mexico – in 2014 a tax on all sugary drinks of US$0.06 per litre. according to The Economist, in 2012 more than 70% of Mexican adults and 34% of 5-11 year olds were overweight and 12% of the population have diabetes which accounted for 14% of deaths in 2009.

Invariably the commercial sector believes that the government should not interfere with the market system and that consumers should be free to decide what to drink and eat. However the effect of a tax can be limited if the retailers absorb all the tax and therefore the price of the drink remains unchanged. Additionally a higher price because of the tax might not lead to any change in consumer behaviour as sugary drinks are very inelastic in nature to them.

Mexico

In some cases the tax has been passed onto the consumer and it has had the desired effect. Coca-Cola’s Mexican bottler, blamed declining sales in 2014 on the price jump that followed the introduction of the tax.  Overall sales of sugary drinks fell by 1.9% in 2014, having increased by an average of 3.2% a year over the three previous years. Some have said that reduced consumption has only saved Mexicans 5 calories a day on average and that the tax is regressive in that it takes more from the lower income groups than their higher income counterparts. Lower incomes were more responsive to the tax cutting their consumption of surgary drinks by 17% within a year of its introduction.

Different levels of tax.

As is the case with Hungary taxes that equate to levels of sugar or salt seem to be more effective with up to 40% of manufacturers adjusting their offending ingredients used. France and Mexico with their flat rate taxes for sugar content give the beverage industry little incentive to make it drinks healthier.

References: 

The Economist – Stopping slurping – November 28th 2015

confectionarynews.com 

Neg Ext Cons

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