Moving towards soda tax

It has been over three weeks since the federal government announced its intent to impose a ‘sin tax’ on cigarettes and beverages. (Read BR Research’s take on this issue: ‘Sin tax has fiscal virtues,’ published December 12, 2018). The inaction thus far on the not-so-radical proposal suggests that the government might be in negotiation with the multinationals and locals operating in those two mega industries.

While tobaccos have been universally taxed excessively to reduce smoking incidence, the idea of ‘soda tax’ does not yet have global acceptance. To date, less than two dozen countries have been able to impose a nationwide soda tax. These countries include a mix of high-income countries (UK, France, Ireland, Belgium, Hungary, Portugal, Saudi Arabia, UAE, Chile and Brunei) and middle income countries (Mexico, Sri Lanka, Philippines, South Africa and Kiribati). US is lagging behind on a nationwide soda tax; but US cities like Seattle, Boulder, Oakland, Philadelphia and San Francisco have adopted soda taxes.

As realizations grows that diabetes and heart diseases are linked with high sugar use – and after the WHO recommendation to member countries to adopt the soda tax – it is hard for the Pepsis and the Cokes of the world to counter the impression that they are on the wrong side of public health. Their playbook to deal with this impression, however, differs based on how advanced or poor the country is.

Unable to influence national and state governments in many developed and upper-middle income countries, the bid soda is spending millions of dollars arguing (through local “coalitions”) that soda tax hurts low-income users and creates unemployment. The US market is the Exhibit A for this lobbying approach, thanks to which several statewide soda-tax initiatives have failed to take off in recent years.

Among the lower-middle-income and low-income countries where governments are desperate for FDI, the high-ups of soda companies regularly receive red-carpet welcomes at the highest level. Just a month ago, here in Pakistan, the Khan government, desperate for foreign investment, was waxing lyrical over planned investment by Coke and PepsiCo to the tune of $1.4 billion over the next five years.

A PR consultant would advise against spending lobbying millions here – mere threat of withholding planned investment can do the trick to defeat a soda tax proposal. Arguably, it could work the other way as well. Given how promising the Pakistani market is for a beverage multinational, the government could float the idea of soda tax in order to strong-arm the MNC into expediting new investments.

In any case, the federal government will do well to take measures that reduce sugar intake in the society, especially among the children. The current proposal to levy Rs1 tax per beverage bottle not only fails to go far enough, it is also going in the wrong direction. To induce behaviour change on part of both seller and consumer of sugary beverages, perhaps it is better to introduce sugar levies that are in proportion to sugar content in individual bottles.

The UK introduced such a system in 2016, and which was implemented earlier this year, by taxing drinks that had more than 5 percent sugar content. The soda-tax slabs were designed to encourage companies to bring down sugar content. (A 330ml Coke or Pepsi can is said to contain 9 teaspoons of sugar – 50 percent more than the WHO’s daily recommended limit for individual sugar intake).

News coming out of the UK shows positive results as beverage companies have adopted different ways to comply. Some companies like AG Barr chose to change the formulation by using artificial sweeteners like Aspartame to keep sugar content below the 5 percent threshold. Others like Coke decided to keep the formulation as it is and instead raised the prices and lowered the serving size.

Of course there is a lot more to obesity than sugar intake; the nature of diet and amount of exercise also play a role. But that’s not the point. Evidence from markets like Mexico shows that soda-tax is working to meet better health outcomes. Plus, if the money raised is duly directed towards health programmes and sports initiatives, it can help strengthen the hands of a fiscally-strapped government towards improving public health. It’s a start, which should later subsequently spread to other unhealthy food products.