--Mexican beverage tax goes farther than anticipated
--Government suggests taxing sweet drinks to curb obesity,
diabetes
--Market had contemplated a tax solely on sweet soda
(Adds comments from deputy finance minister at bottom)
By Amy Guthrie
MEXICO CITY--The Mexican government has proposed penalizing
sugary beverages with a special tax in an effort to contain a twin
epidemic of obesity and type-two diabetes, attempting to join
countries like France and Hungary by taxing sweet drinks in the
name of public health.
President Enrique Pena Nieto's tax overhaul unveiled on Sunday
targets all sugar-sweetened beverages, rather than just soda, in a
country where seven of 10 adults are either overweight or obese,
and where an estimated 15% of people over the age of 20 have
adult-onset diabetes.
The sugar content of carbonated soda has received a great deal
of attention in Mexico recently due to a public-awareness campaign
funded in part by Bloomberg Philanthropies, the umbrella
organization for New York City Mayor Michael Bloomberg's charitable
activities. One initiative in the Senate called for a 20% tax on
soda.
The bill would apply a tax of one Mexican peso (about eight U.S.
cents) per liter of sugar-sweetened beverage, while concentrates,
powders, syrups, essences and flavor extracts would be taxed based
on the liters of sugar-flavored beverage they would yield. The
government said its one-peso-per-liter tax would bring in just over
$900 million a year in revenue.
Mexico is the second-biggest consumer of soda per capita in the
world, according to Euromonitor International data, and the country
is a major source of revenue and profit for both the Coca-Cola Co.
(KO) and PepsiCo Inc. (PEP). Mexico's 16% sales tax already applies
to soda sales. Sugary fruit-flavored waters and juices are also
extremely popular in Mexico.
In a statement, Coca-Cola de Mexico questioned the effectiveness
of applying a tax on beverages to combat obesity. "To change
behaviors effectively, we need to ensure people understand that all
calories count, regardless of the source--and that includes our
caloric beverages too," the company said.
Shares in Mexico's three publicly traded soda bottlers--Arca
Continental SAB (AC.MX), Coca-Cola Femsa SAB (KOF) and Organizacion
Cultiba SAB (CULTIBA.MX)--rose modestly Monday, trailing broad
market gains after having fallen in recent weeks on the prospect of
new taxes.
Analysts were still trying to decipher the initiative on Monday,
since the proposal suggests taxing ingredients such as concentrated
flavors and syrups, as well as bottled beverages in their final
form. Elaborating on the beverage measure Monday, Deputy Finance
Minister Miguel Messmacher said the taxes on concentrates would
apply at the retail level, for example when a soda is dispensed
from a machine at a movie theater.
There was also some confusion as to whether the tax would apply
to all bottle sizes, or just to large offerings of one liter or
more. Credit Suisse analysts said the government's revenue estimate
doesn't reconcile with data showing that the industry produces at
least 30 billion liters of sweet beverages a year, leading the
investment bank to question whether single-serve presentations that
account for a significant portion of Mexican beverage bottlers'
portfolios could be exempt from the tax.
Mr. Messmacher said the tax will apply to sugar-sweetened
beverages of all sizes, including juices.
--Anthony Harrup contributed to this article.
Write to Amy Guthrie at amy.guthrie@wsj.com
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