2016: The year of the sugar tax

By Richard Whitehead, Elaine Watson, Will Chu, Niamh Michail, Louis Gore-Langton, Rachel Arthur

- Last updated on GMT

© iStock/Piotr_Malczyk
© iStock/Piotr_Malczyk
Debate around sugar taxes has hit the limelight this year, with the controversial topic grabbing headlines around the globe.  

The UK, for example, has pledged it will introduce a soft drinks industry levy; a set of US cities including San Francisco and Philadelphia have made similar moves; and South Africa has published its proposals. In the meantime, debate has been re-ignited in Australia and New Zealand, discussions that look set to continue into 2017.

But why have sugar taxes hit the headlines in 2016? And what are the key countries and cities considering such policies? We take a look at some of the countries where sugar taxes have created a stir this year.

Win-win policies for governments

Chris Snowdon, director of lifestyle economics at the Institute of Economic Affairs, points out that sugar taxes appear to be a win-win policy for governments.

“There has been an intense campaign to demonize sugar in recent years and there is a desire among public health campaigners to transfer anti-smoking policies to other areas of life,”​ Snowdon told this publication.

“This, combined with politicians’ hunger for tax revenue, has led to the rise of sugar taxes. Governments see sugar taxes as a way of raising money while appearing virtuous.

San Francisco, the UK, Spain, Portugal... read on to explore markets where sugar taxes are on the table

"It is an irresistible combination.”

The International Council of Beverages Associations also points to revenue as a motivation: “Recent taxation proposals are attempts by governments to raise revenue, not improve public health,”​ said ICBA executive director Kate Loatman.   

Build-up of momentum

Jack Winkler, Emeritus Professor of Nutrition Policy at London Metropolitan University, says the movement towards sugar taxes has been building for some time.

“Without doubt, the catalyst for the current phase of interest in sugar has been the forceful advocacy of Robert Lustig, drawing attention to the multiple health problems associated with sugars, especially fructose,”​ he said, referring to the American pediatric endocrinologist whose work has gained mass public attention.  

“But his interventions came in a context: the rising obesity rates all over the world, in developing as well as developed countries, and the parallel realization that the low fat strategy had not worked.

“There is often a long time lag between awareness of a problem and a coalescence of relevant actors on a response. That the world eventually came down on the side of taxation as a strategy (variously of sugary drinks, of sweet products, or of sugar itself) has much to do with the simplicity of the idea.”  

A simple concept

This simplicity is an important factor, says Winkler, as it gives the general public or those without specialist knowledge the chance to engage and voice an opinion.  

“It is an easy concept for non-specialists to grasp — compared say to agricultural policies that have a much bigger effect on the price of sugar and foods generally than any politically conceivable taxes.

“So people who understand little about the food industry or economics can grasp and support the core idea. And this has had a bandwagon effect, culminating in proposals.”

Scientific opinion plus public opinion

In October this year, the World Health Organization (WHO) backed the concept of sugar taxes,​ stating that a levy on sugary drinks would result in ‘proportional reductions in consumption,’ especially if the retail price were to increase by 20% or more.

Jamie Cartwright, partner at UK-headquarted law firm Charles Russell Speechlys, notes the WHO’s stance, along with pressure from lobbying groups and health services, as factors for the attention on sugar taxes.

“Scientific opinion is clearly one catalyst, but a shift in public opinion, together with a recognition by governments that positive action is required to be demonstrated, and to an extent the manufacturers themselves (a number of whom are exploring reformulation and alternative products) have been key,”​ he said.

Look at what has not​ happened

Sugar taxes have certainly grabbed the headlines in 2016. But Jack Winkler says it’s just as important to look at what has not​ happened.

“Inaction is not news,”​ he observes. Understandably, the popular media concentrate on those cases where some positive action occurs.

“While you may be impressed by the number of recent proposals for sugar taxes, looked at on a global basis, they represent a small fraction of the potential.”

Around the globe

The following is not intended as a comprehensive list of markets where sugar taxes have been introduced or are under discussion: rather, it seeks to put the spotlight on some of the markets where debate has heated up in 2016 around the globe.

USA

USA

While former NYC mayor Michael Bloomberg’s attempt to limit the size of sugary beverages sold in movie theaters and other locations was thwarted​ in 2014, soda taxes are gaining traction at a local level in the US, with Berkeley the first city to make such a move (effective January 2015), followed by Philadelphia (effective January 2017).

A flurry of other cities have since followed, with San Francisco, Albany, Oakland and Boulder all passing ballot measures to impose soda taxes on November 8, while Illinois’ Cook County ― which includes Chicago ― approved a tax on November 10. Santa Fe is also contemplating such a move in order to fund early childhood education initiatives.

As Berkeley is the only city where the tax has come into force, it’s too early to assess the long-term impact on soda consumption. One study​ from UC Berkeley suggested the tax had prompted a 21% drop in the consumption of sugary beverages in low-income neighborhoods, but critics​ said the figure was “fatally flawed​” given that it was based on self-reported consumption, not sales figures, while it was also unclear whether residents had simply bought more soda beyond city limits.

To muddy the waters further, research by Cornell and the University of Iowa suggested that beverage companies did not pass the full amount onto consumers​ (a penny per fluid ounce), likely dampening its impact.

However, in a report​ released this week, researchers at Harvard University’s T.H. Chan School of Public Health argued that a soda tax of one cent per ounce in the six US cities above coupled with 15 more major cities would cut diabetes rates by 6%.

MEXICO, BRAZIL, COLOMBIA

iStock-497904360

In Mexico, which introduced a 1 peso per liter soda tax in 2014, per capita consumption of sugary drinks has since dropped, while consumption of water and non-taxed beverages has increased, according to a 2016 study​ published in the British Medical Journal​. 

Sales have nevertheless increased owing to population increases and other factors.

A tax on sugary drinks is also being debated in Brazil and Colombia, where rates of diabetes are growing rapidly.

NEW ZEALAND

New Zealand

Debate over a potential sugar tax has been raging in New Zealand in the last year, with doctors calling for a 20% tax on sugary drinks. Wellington has taken a pragmatic line, saying there is no evidence that such a levy would work, and instead will focus on a health policy that concentrates on awareness and exercise. The Taxpayer Alliance, meanwhile, has labeled those pushing for a sugar tax as “post-truth virtue signallers​”, and there appears to be little public support for such a move.

Still, medics recently redoubled their efforts to push the government towards their way of thinking, with the NZ Medical Association now claiming it has enough evidence that a sugar tax would help reduce obesity, diabetes and tooth decay. Dentists have called for labeling laws to outline a drink’s sugar content in teaspoons. Expect the debate to heat up further over the next 12 months.

AUSTRALIA

Australia

Australians appear less enthused by the idea of a tax on sugary drinks than their trans-Tasman neighbors, though pro-levy pressure groups and think tanks have increased their activity in the closing months of 2016. The Grattan Institute has recommended a A$0.40 (US$0.30) tax per 100g of sugar, which it believes will cut soft-drink consumption by 15% and raise A$500m (US$376m) a year for Canberra’s coffers.

Yet there is little support for such a move in government, with deputy prime minister Barnaby Joyce describing a sugar tax as "bonkers mad​" and a "moralistic tax​" that would have a huge impact on sugar farmers in the north of Australia. The Greens party has drafted legislation for a sugar-sweetened beverages tax ahead of a private senators bill to be heard before the end of next year.

PHILIPPINES

A proposal in the Philippines to impose a tax of PHP10 (US$0.20) per liter on soft drinks—to be increased by 4% each subsequent year—cleared a House of Representatives committee in November but still has some distance to go before its passage. This is three times as much as the Mexican tax and would upset the growing market potential of the soft-drinks industry, analysts say.

However, President Duterte’s administration has strongly backed the bill, which the finance ministry believes could be worth PHP10.5bn (US$211m) to public funds. This has come to the dismay of industry players such as Universal Robina Corp and Del Monte Philippines, which have already expanded their portfolios of low-calorie drinks.

INDONESIA

The Southeast Asian giant has past experience of a sugar tax, which it implemented then scrapped over a decade ago due after it was found to have crippled beverage manufacturers. Sales of sweetened drinks in Indonesia have averaged double-digit annual growth since the tax was lifted in 2004 to reach revenues of US$6bn last year—though analysts believe this is a fraction of the true market potential. Sugar intake remains below global and regional levels but is rising fast.

Finance officials this year asked the health ministry to study whether sugary drinks, including Indonesia’s most popular bottled drink after water, tea, constitute a health threat. There is little evidence that taxing the segment alone would have an impact on the health of famously sweet-toothed Indonesians, who take much more sugar from the food they eat than the packaged beverages they buy.

INDIA

INDIA

The debate in India doesn’t concern a soda tax as such, but the place of “aerated beverages​” in the country’s anticipated GST regime at point of sale. Earlier this year New Delhi’s chief economic advisor, Arvind Subramanian, recommended a 40% levy under the new tax system for “luxury goods​”, including high-end cars, tobacco and aerated beverages—a category dominated by multinationals including PepsiCo and Coca-Cola. Packaged juices, which are largely locally produced, would not be affected.

Coca-Cola India slammed the tax as being detrimental to Prime Minister Modi’s “Make in India​” campaign to draw foreign investors to the country. The top-tier tax proposal has since been reduced to 28%, however—though still up from the current 17-18%.

The Indian Beverage Association has been arguing vociferously that carbonated drinks are by no means luxury goods and serve a need for consumer hydration. The standing of low-calorie carbonated drinks under the regime is still unclear, though these account for less than 1% of the country’s soda market. The new GST, a Modi flagship policy, is expected to be introduced in 2017.

SOUTH AFRICA

SOUTH AFRICA

South Africa’s National Treasury published its proposals for a tax on sugar-sweetened beverages​ in July this year, with the tax due to come into effect on April 1, 2017.

As in other nations, the government cites an ambition to reduce obesity in the country as its motivation. South Africa is ranked the country with most obesity in sub-Saharan Africa, and the government is targeting a 10% reduction in obesity prevalence by 2020 across various strategies.

South Africa’s sugar tax will consider SSBs as beverages that contain added caloric sweeteners such as sucrose, high-fructose corn syrup, or fruit-juice concentrates, including soft drinks, fruit drinks, sports and energy drinks, vitamin water drinks, sweetened ice tea and lemonade. Beverages that contain only intrinsic sugars (such as 100% fruit juice) will be excluded.

UK

UK

The government’s announcement in March that it would introduce a soft drinks industry levy came as something of a surprise to many. What has ensued – after George Osborne’s departure from the role as British finance minister; the Brexit vote in June; and a volatile economy – has been a furor over if or how plans will be enacted.

This month, draft legislation for the levy was published,​ confirming a two-tier levy at 5 g sugar per 100 ml and 8 g sugar per 100 ml. Final details are due to be published in the 2017 budget, with implementation due in April 2018.

While health organizations and celebrities such as popular chef Jamie Oliver have fought hard to maintain the campaign’s momentum, some studies suggest the plan could prove costly; Oxford Economics predicted 4,000 jobs lost and a £132 m (US$168 m) cost to the economy, with an average return of five less calories per day, per person. Industry bodies like the Food and Drink Federation (FDF) have too claimed the tax will hit smallest players hardest, and that health campaigners are wrongly painting the saga as an upward fight against corporate giants.

IRELAND

The Irish government has announced it will seek to introduce a tax on sugar-sweetened beverages in 2018. A public consultation was launched in October and will run until January 3, 2017. The consultation sets out proposals for tax that applies to water-based and juice-based drinks with an added sugar content of 5 grams / 100ml and above. Pure fruit juices are excluded, as are dairy-based drinks.

The Irish government notes the UK’s proposals for a soft drinks industry levy, and says: “Given the highly integrated nature of the UK and Irish soft drinks markets in terms of production and supply, similar structures and timings may be beneficial.”

PORTUGAL

Portugal is expected to introduce a sugar levy next year, which uses a two-tier band to determine how much should be charged.

portugal flag_dennisvdw

The levy will only apply to soft drinks with milk and fruit juices exempt.

Soft drinks with more than 80 grams per liter (g/l) of added sugar will face a tax of €16.46 (US$17.54) per hectoliter (100 liters). Drinks with less than 80 g/l of sugar will be taxed €8.22 (US$8.76) per hectoliter.

The country’s previous center-right government had wanted to introduce a levy before being defeated by the Socialists who came to power in November 2015.

The resurrection of these plans was detailed in a budget bill presented in October of this year.

SPAIN

Announced only last week, Spain has become the latest country in the EU to introduce a tax on sugar-sweetened beverages.

Like Portugal and the UK, the Spanish government has set out plans for a two-tier levy set for 2017. The Spanish government announced its intentions as part of a long-term strategy to lower the country’s public deficit raising €2bn (US$2.13bn) that includes a higher duty on tobacco and alcohol.

A similar tax was already discussed several times in recent years as the country’s obesity and diabetes rates are relatively high at 23.7% (% 18+) and 8.2% (% aged 20-79) respectively.

FRANCE

France

Since the introduction of a relatively small levy on sugary drinks (three to six euro cents per liter) industry protest has continued.

Equaling around one euro cent per container, the levy came into effect in 2012 with expected revenue of around €120m (US$128m) per annum. Corporations like Coca Cola have continued their attack on the ‘discriminatory’ policy, and pointed to EU studies showing little change in consumer behavior and high administrative costs resulting from the tax.

ESTONIA

Estonia's coalition government recently announced that a tax on drinks with a high sugar content​ would be put in place during its mandate which runs until 2019. Details have not yet been formalized. The Ministry of Finance and Ministry of Social Affairs are currently developing the proposal and a preliminary analysis is expected to be complete by March next year. 

However, a recently published government report said that to maximize the effect, taxes and subsidies should be at least 10–15% of the product's price.

The plans have been opposed by the country's food industry association, Eesti Toiduainetööstuse Liit, which said that singling out sugary drinks was discriminatory and breached EU rules on the common market.

All images: iStock

Related topics: Regulation, Sugar reduction, Beverage

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