‘Fat taxes’ beginning to be imposed on carbonated beverages

3 May 2013

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Carbonated drinks are bad for your health as they contain huge amounts of refined sugar, yet the production of plastic bottles and cans especially is highly reliant on this industry which could be hit if ‘fat taxes’ are imposed on them.  The ‘fat tax’ has an additional benefit however for the state – it is an extra source of revenue with the excuse of encouraging healthy eating.

Take France for example. The continued economic problems facing France and its persistent fiscal deficit pushed both the last UMP government and the new Socialist executive led by Francois Hollande to impose new taxes on various sections of the French economy.

The soft drinks industry has not escaped tax hikes and in January 2012, a new ‘fat’ tax was imposed on sugary beverages equating to around 1 cent per container, and expected to raise in the region of €150m for the French Treasury. The new tax was introduced to both contribute to reducing the fiscal deficit, and to fight against the rising obesity problems that most western countries – including France – now face.

The tax hike has been heavily criticized by several soft drinks industry players claiming that consumption would fall by as much as 10% in what is considered by some to be an important sector of the economy. Despite this opposition, the government has refused to backtrack on the legislation, and while effects of the hike appear to have been somewhat overstated, the market for soft drinks in France remains subdued.

In the light of such a tax regime, and in line with the general economic malaise affecting France, many consumers have sought to reduce consumption of higher priced beverages, and a trend of trading down to less expensive, lower sugar products has been seen in the country over the last 12 months. Unless there is a change of heart on the part of the government, any significant growth recovery in drinks categories such as carbonates, juice, nectars and still drinks is unlikely to be seen in the short to medium term.

Conversely however, an attempt to introduce a punitive sumptuary tax (€50 per hectoliter) on energy drinks was struck down by the French ‘Conseil Constitutionel’ on the grounds that the tax lacked an ‘objective and rational criteria’. The tax had been intended to reduce the consumption of energy drinks as mixers for alcohol by young persons in particular. The ruling has been welcomed by several large players in the industry. As a result Candean forecasts further impressive growth in this category in the coming years, bucking the overall negative trend seen in the market as a whole.

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