Editorial | The sweet drinks tax

Having long backed policies to combat high rates of non-communicable diseases (NCDs), The Gleaner supports the government’s decision to impose a special consumption tax (SCT) on pre-packaged sweetened beverages. It has been long in coming.

However, as we noted previously, the announcement by Finance Minister Fayval Williams a fortnight ago, shouldn’t be the end of the process, if the move is indeed more than a revenue-raising exercise, but is underpinned by public health considerations.

The outcomes must be closely monitored by not only the tax authorities for its fiscal efficacy. It should be watched too by the health authorities to determine if and how the mechanism employed impacts consumer behaviour, or the regime should be adjusted. This could also have implications for innovation by Jamaica’s sweet drinks manufacturers.

Under Ms Williams’ measure, consumers will soon pay an extra two Jamaican cents per millilitre of non-alcoholic sweetened beverages (NASB), whether the sweetener is direct sugar or non-sugar sweeteners and those that have no caloric values, like those used in diet drink. The SCT will be in addition to the 15 per cent general consumption tax (GCT) Jamaican pay on most purchases.

The government says that it will collect the tax directly from manufacturers, or at Customs from importers, which means, unless the added cost is embraced by firms, it will work its way through the supply chain to consumers.

The government projects that it will raise J$10.1 billion from this levy during the 2026-2027 fiscal year, or 56 per cent of the J$18 billion in new taxes (not counting the J$11.4 million the government will continue extract from the National Housing Trust) to help narrow gaps in the administration’s budget after the devastation caused by Hurricane Melissa last October.

FLAT RATE LEVY

For its sweet drinks tax, Jamaica has chosen a flat rate levy, rather than a tiered regime, where the rate increases the higher the amount of sugar in a drink. Used by Jamaica’s partners in the Caribbean, the flat-rate system is easier to manage, requiring no complicated monitoring of, or reporting by, manufacturers to determine whether their products are below or above the various benchmarks that shift the value of the tax.

On its face, both regimes have worked in reducing the consumption of high-sugar-content drinks (according to the World Health Organisation a can of soda, on average, contains 40 grams or about 10 tablespoons of sugar), which health officials say contribute significantly to Jamaica’s growing problem with NCDs, like hypertension, obesity and diabetes. It is estimated that one in three Jamaicans is hypertensive, one in five overweight or obese and about nine per cent diabetic. One government report estimated that between 2027 and 2032 it would cost taxpayers over J$77 billion for the treatment of NCDs.

While the flat and tiered tax regimes have been associated with falls in sugar/sweet drink consumption, some analysis seem to suggest that the latter leads to greater declines, except perhaps for Bermuda, which has 75 per cent duty on sugary drinks and candies. Consumption declined in Bermuda by between six and 30 per cent, depending on the analysis reviewed.

After Mexico introduced one peso on drinks with added sugar – milk and yoghurt were excluded – in 2014, sales on these products fell six per cent in the first year and reached 10 per cent in the second. Among poorer consumers, the decline was 17 per cent.

SKETCHY

Readily available data from Caribbean countries where similar taxes have been introduced remains sketchy, although all have reported falls in the consumption of high-sugar-content drinks after the levies were imposed. In Barbados, which doubled its tax to 20 per cent in 2022, health officials, two years ago, reported a 4.3 per cent decline in weekly sales in sugar-sweetened drinks and a 5.2-per-cent rise in the sale of non-sweetened ones. Bottled water sales went up seven per cent.

Britain introduced a tiered levy in 2018. Products with less than five grams of sugar per 100 millilitres are exempt from the level. Those with five to eight grams per 100ml pay 18 per cent per litre and over eight grams per 100ml, the rate rises to 24 per cent per litre. Between 2015 and 2019, one review of European trends indicated, consumption of sugar sold in soft drinks fell by more than 34 per cent.

After South Africa introduced a levy of 2.1 per cent per gram at above four games were 100ml, overall sales of sugar sweetened drinks fell 19 per cent, but was 10 percentage points higher among poorer households.

The government has to set its technicians to work in understanding the behavioural economics that may emerge from Jamaica’s initiative as consumers react to price movements and if there is need for adjustments and room for innovation.

Additionally, despite the declaration of policy conversion between the health and finance authorities, there could be tensions between both objectives if collection from the levy falls significantly below estimates as Minister Williams faces the prospect of a wider fiscal deficit.

These issues, should they arise, have to be addressed frankly and with transparency, so that Jamaicans receive all of the potential benefits of the initiative.