Bitter-sweet pill for local beverage manufacturers
The Sri Lanka government is mulling increasing the existing tax on soft drinks and extending it to all varieties of sweetened beverages, food items and sweet meats based on its sugar content.
The main aim is to reduce obesity; diabetes and the growing concern over the mounting public health expenditure on non-communicable diseases (NCD).
The Beverage Association of Sri Lanka (BAOSL) has noted that the sugar tax on soft drinks will raise less revenue than expected because companies are producing beverages less sweet or sugar free to avoid additional cost.
Treasury officials will formulate the relevant proposal for the upcoming 2019 budget following pre budgetary meetings with the BAOSL and the Sri Lanka Confectionery Manufacturers’ Association, official sources said.
President Maithripala Sirisena has directed Finance Minister Mangala Samaraweera to extend the tax on soft drinks to all forms of sweetened beverages recently alleging that Nestlé had increased the sugar content in Milo to 16.5 per cent from 15 per cent in 2012.
Sri Lanka’s 2018 Budget had imposed a 50-cent tax on each gram of sugar in soft drinks with effect from early November 2017.
This tax is likely to be increased covering all sweetened beverages, food items and sweets from the 2019 budget.
Health Minster Dr. Rajitha Senaratne told the Business Times that no concessions have been given to beverage companies regarding the sugar tax on sweetened beverages proposed in the 2018 budget.
An awareness programme on ill effects of sugar consumption leading to non-communicable diseases (NCDs) is being implemented by the ministry, he said, adding that the World Bank has granted US$ 200 million financial assistance to Sri Lanka to control the NCDs.
According to the World Health Organisation (WHO), about 70 per cent of the population worldwide die from non-communicable diseases and about 5 million people die of diabetes.
In Sri Lanka, deaths due to diabetes have gone up and the main cause was too much consumption of sugar, a WHO report revealed.
The report recommends, for consideration by the Sri Lanka Government, that a specific excise tax of Rs 1 per gram of added sugar per 100 ml, above an initial threshold of 6 g/100ml be implemented on sugar-sweetened beverages (SSBs).
This would increase SSB prices by 24 per cent, decrease consumption by 26 per cent (from 140 million litres to approximately 103 million litres); generate revenues by an estimated Rs. 5.3 billion and incentivise SSB manufacturers to reformulate and reduce free sugars in their products, the report pointed out.
However President Sirisena who was in favour of sugar tax not only on soft drinks but also on all sweetened beverages had given an assurance to the Sri Lanka Confectionery Manufacturers’ Association that a tax will not be introduced to confectionery items.
Under the proposed tax, sugar content of over 1.5 g per 10 g product would be taxed at Rs.8.50, a senior Treasury official said, adding that it is unlikely to be introduced due to the president’s directive.
The President’s intervention in the sugar tax revision has created uncertainty in the implementation of the government taxation to incentivise healthy dietary choices as appropriate to the national context, economic experts warned.
Although it is premature to predict the public health benefit from the sugar tax, the carbonated beverage industry has already felt the pinch of the 50 cent tax on each gram of sugar in soft drinks, they disclosed.
John Keells Holdings PLC that has a larger market share in Carbonated Soft Drinks (CSD) market in the country has recorded a drop in volume of 37 per cent due to the implementation of a sugar tax from November 2017, market analysts said.
The imposition of the sugar tax resulted in the prices of the CSD increasing by an average of 33 per cent.
Additionally, volumes of the beverage sector declined by 16 per cent, owing upward price revisions of the carbonated drinks range, they pointed out.