Rethink the tax on sugary drinks
Adis Israngkura na Ayudhya
Thailand has had the bright idea of curbing public health problems such as obesity and heart diseases by imposing an excise tax on sugary drinks sold mainly in convenience stores. This idea has been implemented in some developed countries such as the UK, US, Norway, Denmark and France. In the case of the Thai tax scheme, the sugary drinks to be taxed include, for instance, carbonated drinks, green tea, canned coffee, energy drinks, sour milk, soymilk and bottled juice.
The tax rates to be imposed on such sugary drinks are 20% for those with sugar concentrations between 6g-10g per 100ml while those with higher sugar concentrations will be subject to 25% tax.
While the public health concern supporting this tax scheme in Thailand is clear, its implementation leaves one doubting whether such a tax will eventually improve public health. Sugar enters our body via all kinds of food and drinks besides sugary bottled drinks. Thais who crave cups of cappuccino, latte or macchiato also consume plenty of sugar but these drinks will not be taxed.
Local drinks containing caffeine, such as, oleang or cha-yen sold by street vendors contain even more sugar. Local Thai puddings such as foi thong, thong yip or thong yod , or confectionaries such as chocolate bars, candies, cakes or doughnuts, also have high sugar content but will not be taxed. The final verdict is if the Ministry of Finance truly aims to reduce sugar intake by citizens, the tax measure should then aim at sugar, particularly white sugar, and not the drinks.
The economic rationale supporting the sugary drinks tax is to send the correct price signal to both producers and consumers of sugar. As sugar is used as an ingredient in many kinds of food and drinks, the most efficient way to transmit this price information to the public is to tax sugar – not sugary bottled drinks.
If sugar, particularly white sugar that is more damaging to health, is correctly taxed, it will make sugar more expensive and hence all food and drinks that use sugar as an ingredient will automatically become more expensive. The sugar concentration tax schedule will no longer be necessary either as commodities with high sugar concentrations will automatically suffer high costs and will be priced higher than those with lower sugar concentrations.
Taxing sugar, perhaps at sugar refineries, is the most efficient way to respond to sugar tax advocates and will promote better health as people will use less sugar in all food and drinks. However, it seems that the Ministry of Finance may not have much interest in taxing sugar refineries and will simply opt for the easy way out by imposing a tax only on sugary bottled drinks even though this tax is deemed inefficient. More importantly, such a tax scheme would probably have a minimal impact on improving public health as consumers can still consume a vast variety of sweet food and drinks that are not taxed.
The only benefits of taxing sugary bottled drinks are the 10 billion baht in government revenue per year and the glory that Thailand would join the few developed countries that also impose a sugary drinks tax.
The economic outcome of a sugary drinks tax in Thailand is worth mentioning. Taxing sugary bottled drinks, the way Thailand has designed it, leaves one doubting if non-sugar carbonated drinks, such as, Coke Zero or Pepsi Max that use artificial sweeteners (aspartame and acessulfame potassium) will be subject to such a tax. If so, how would the tax be calculated as their products contain no sugar concentration? If not, Coke Zero and Pepsi Max would enjoin the benefits of the Thai sugary drinks tax scheme as their prices would be relatively lower and people would simply switch from sugary carbonated drinks to artificially sweetened carbonated drinks.
Another economic distortion can be observed when consumers switch from sugary bottled drinks to street cappuccinos and lattes that are served in cups. This multi-million-dollar coffee bar business, whose products also contain high concentrations of sugar, will also enjoy the benefit of the Thai sugary drinks tax scheme as more people will shift from sugary bottled drinks to sugary cup drinks.
While the economic costs arising from consumer behavioural distortions are clear, the public health benefits from the Thai sugary drinks tax are not evident. If such a sugary drinks tax is imposed and the public health condition in Thailand (that relates to over-consumption of sugar) does not improve statistically within a certain time, the Ministry of Finance should have the courage to stand up and remove such a tax in the future.
I, for one, advocate for better public health. But better public health needs to be achieved in a civilised manner. Accurate information about the side effects of various kinds of food and drinks is useful for the public when deciding what to eat and what not to eat.
I also find health information on the need to exercise and the need to rest adequately very useful. In this regard, the Ministry of Public Health together with the Ministry of Education should continue putting together programmes to disseminate useful health information to the public and enable the public to choose a healthier lifestyle.
Younger generations should have a better diet not because they are taxed but because of better understanding about what they eat and what they don’t eat.
I, too, believe in freedom of choice. So long as one’s choice does not infringe upon the freedom of others, one should have the right to eat or drink whatever one wants.
Adis Israngkura na Ayudya, PhD, is an adviser of the Thailand Development Research Institute (TDRI).