“Tax Social Engineering”. The war brings the price of sugary drinks back into play

Sugary drinks are expected to rise in price again, as a sign of the fight against obesity and overweight, which significantly burdens the health of Czechs and the health care budgets. At the same time, the government has already increased the price as part of the inclusion of these drinks in a higher VAT rate, which experts previously described as a “step by the wayside” that will not bring the desired effect. Health Minister Vlastimil Válek (TOP 09) now wants to follow the path that many countries in Europe have already chosen. By taxing the sugar content. However, even this path does not only find understanding.

Excessive sugar intake is not only related to obesity, but also, for example, to the risk of cardiovascular diseases, cancer, diabetes or higher tooth decay, for which Czechs have long been not among the top Europeans in terms of hygiene. On the other hand, taxing “liquid” sugar remains just one step, which in itself will not solve obesity, as supporters admit, but according to experts, it can improve the situation. In the world, over 50 countries have introduced the tax in various forms, of which 12 are European, most recently Poland in 2021, and recently Robert Fico’s cabinet in neighboring Slovakia announced plans to introduce it.

In the Czech Republic, the government first decided to go the route of raising VAT, but now the Ministry of Health is returning to the proposal, which the National Economic Council of the Government (NERV) has been appealing for a long time. “The Czech Republic is the 3rd country in the EU with the highest proportion of overweight adults, up to 60% of the adult population is overweight, which has significant negative effects on the costs of the health system, social system and economic productivity,” states NERV in its health recommendations. However, as some experiences from abroad show, it depends significantly on whether the tax is set in a sustainable manner.

In the Czech Republic, according to a recent study by PAQ Research, the introduction of an excise tax on sweetened beverages would bring additional budget revenues of 2.7 billion crowns and would mean savings of billions in health and social costs and would help reduce obesity. However, some representatives of the government and the opposition pointed out that the introduction of the new tax could also mean significant costs. On the contrary, the study contradicts this. “At the same time, it is not true that the introduction of the tax would be difficult, in Great Britain it cost only 2.4 percent of its annual collection,” the authors state. At the same time, between 2015 and 2020, in connection with the introduction of the tax, the total weight of sugar sold in sweetened beverages should fall by 36%.

Experts who are members of NERV propose the so-called Polish model, according to which the tax is linked to the concentration of sugar in a liter of drink. According to the analysis, taxation would only have a limited impact on beverage manufacturers, who will be motivated to reduce sugar concentration and sell unsweetened beverages. According to them, sugary drinks are one of the main sources of sugar consumption. In the USA, according to the analysis, up to a quarter of the sugar consumed comes from them, in the Czech Republic there is no data, but experts assume similar trends. At the same time, the study mentions an evaluation study from the first year of the introduction of the tax in Poland, when it should have had an impact on the sugar content in the case of the composition of 62% of the examined drinks.

The study proposed a consumption tax in the form of which drinks with a sugar density of 50 grams per liter would be taxed at CZK 3.4 per liter. In addition, he proposes an additional tax of CZK 0.35 per liter for every ten grams above this basic density. As an example, he states that a pint of drink with 72 grams of sugar would be taxed at CZK 2.225. It also proposes to introduce a consumption tax for drinks containing at least one artificial sweetener, at the rate of one crown per liter. The study said consumption of sugary drinks would decrease by 15 percent.

The Polish system works with a basic rate for drinks with a certain minimum concentration of sugar and a variable component that further burdens sweetened drinks. Therefore, the higher the concentration of sugar in a given sweetened drink, the higher the tax rate. NERV experts point out, however, that this is only a part of the puzzle, which has its own meaning, but it must be supplemented by other steps, such as education or support for sports among children.

In any case, the tax would make sugary drinks more expensive for consumers and another new regulation for entrepreneurs. “I have doubts about expanding the number of commodities burdened with excise taxes. What’s next, belly, morning glory? Shall we tax condoms more to encourage fertility or less to protect health? I don’t like this fiscal social engineering” https://twitter.com/kalousekm/status/1784951425660789230 proposed by former Minister of Finance Miroslav Kalousek. The “vice” tax, which is also supposed to fulfill the function of reducing consumption, already today makes selected alcohol and tobacco products more expensive.

The manufacturers themselves are strongly opposed, according to which the ministry is selectively going to punish sugary drinks, even though it is far from the only problem. According to the Association of Soft Drink Manufacturers, sweetened drinks often do not contribute in a major way to the consumption of so-called free sugars. According to the association, companies are already reducing the amount of sugar in their drinks based on WHO recommendations or the EU’s From Farm to Fork strategy. According to the union, a reduction in consumption can lead to layoffs and an impact on profits and tax payments in downstream sectors as well.