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Mexico’s Soda Tax Seems to Be Working


 Do soda taxes curb consumption?

Update, 10.21.2015: Mexico's Lower House has overwhelmingly approved a measure that would reduce the tax on beverages containing "less than 5 grams of added sugar per 100 ml."

Proponents of specific taxes on soda and other sugar beverages say they can help reduce consumption. But do they actually work?

The answer may come from Mexico, where more Coca Cola is consumed than in any other country. The average Mexican consumes almost twice the Coke consumed by the average American, no soda slouch himself. The country also has one of the world’s fattest populations. With diabetes and other health problems growing along with Mexican waists, the government readily embraced a soda tax as a possible solution.

In January 2014, Mexico imposed a one-peso (about 6 cents) per liter tax on sugar-sweetened drinks, increasing retail prices by about 10%. According to research conducted by the Mexican government and the University of North Carolina, soda sales in December 2014 were 12% lower than soda sales in December 2013. “The declines were the biggest for lowest-income Mexicans — as large as 17 percent in December — suggesting it was the prices, and not the publicity around the tax, that was making the difference” (New York Times).

ANPRAC, Mexico’s soda industry, has released numbers of its own showing a mere 1.9% decrease in sales from January 2014 to June 2015. Nasdaq reported “a 3% decline in Coca-Cola’s net Mexico volumes in the second quarter [of 2014], after falling by a low-single-digit percent in Q1.”

All numbers point to a decline in soda sales. However, it’s still too early to tell if the tax will trigger real changes in consumer health.

United States

The effects of soda taxes are harder to gauge in the United States. There are few outright soda taxes in this country, and those that do exist are imposed at the municipal level.

Berkeley, California, has imposed a penny-per-ounce tax on sugary beverages since January 1, 2015. It generated $116,000 in revenue in its first month and was, as of May 2015, on target to raise $1.2 million in its first year — money that will be used, in part, to educate people on the health effects of soda consumption. Yet there is little evidence to suggest that the tax actually curbs consumption. According to the National Bureau of Economic Research, “[T]here was relatively little pass through of the Berkeley SSB (sugar-sweetened beverages) tax to consumers.” If buyers don’t feel the tax, it is unlikely to impact buying habits.

Chicago has imposed a Home Rule Municipal Soft Drink Occupation Tax of 3% since the mid-1990s, along with a 9% fountain drink tax on syrup. However, many feel these taxes are inadequate and there is a move to impose a penny-an-ounce tax like Berkeley’s. As of this writing, it has “failed to gain traction.”

Approximately 35 states impose retail sales tax on soft drinks, most recently Vermont. Other states, such as Connecticut and Illinois, have considered but rejected specific taxes on sugary beverages.

The world is watching

The World Health Organization reports “an emerging global epidemic of diabetes that can be traced back to rapid increases in overweight, including obesity and physical activity.” It is expected to be the leading cause of world mortality by 2030.

Soda consumption is only one part of the problem. Nonetheless, the world is watching how the soda tax plays out in Mexico and other countries where similar taxes have been enacted, such as Barbados.

And it may be that all this talk about soda taxes and the ill-effects of consumption is enough to make people think twice before they drink.

 

 


Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.