The government’s proposal to increase the excise tax on soft drinks is extremely problematic. The proposed rate is double the current tax and five times the rate of three years ago. It shifts demand to untaxed products, reduces the growth potential of companies liable to taxation, and weakens employment in Finland. The soft drinks tax was last increased in both 2012 and 2011.
According to the proposal, the soft drinks excise tax would be split into two brackets. The excise tax on soft drinks containing sugar would be raised to 22 cents per litre, while the tax on sugar-free beverages would remain at 11 cents per litre. The limit for sugar content, 0.5% sugar, is so strict that, for example, many health and wellness waters fall into the higher tax bracket.
“It’s unfair to impose differential taxes on a single product group, as it will further increase the workload of the companies liable to taxation. It is also tough on the companies that are being singled out. Denmark, for example, has experimented with differential taxation on soft drinks, but this problematic tax is now being completely abolished due to an explosion in cross-border trade,” says Elina Ussa, Managing Director of the Federation of the Brewing and Soft Drinks Industry.
The Federation of the Brewing and Soft Drinks Industry proposes that instead of imposing excise taxes on individual product groups, the government should either develop a broad-based tax based on sugar content or manage taxation through VAT. It should be remembered that taxation must always be fair and based on objective and rational grounds.
The Finnish Food and Drink Industries’ Federation considers untaxed products as receiving illegal support from the State. The Federation has therefore filed a complaint with the commission about the taxation of confectionary, ice cream and soft drinks.
Excise tax will not solve challenges in public health
The only nation in Western Europe that drinks fewer soft drinks than Finland is France. Total consumption in Finland is slightly below 60 litres of soft drinks per person.
The proposal refers to the health-promoting effects of the tax, but in accordance with its definition in tariff nomenclature, the excise tax is randomly imposed on certain products while leaving nutritionally similar products untaxed. Nowadays, the soft drinks tax is even paid on mineral waters. Public health challenges associated with nutrition are not the result of a single product, but a consequence of overall diet and lifestyle. It is therefore discriminatory to quote public health as a reason for levelling a tax at soft drinks alone.
“A narrow-based tax will not have any visible effects on public health. On the other hand, a flat tax would punish low-income families in particular,” says Ussa.
Multi-year decline in the soft drinks market continues
Sales of soft drinks by Federation member companies fell by just over 10 million litres in 2012, which represents about 4.1 per cent of Finland’s volume. 2012 saw the greatest contraction in sales since 2004, when total sales of soft drinks first took a downswing. This decline in the market has also continued during 2013. However, soft drink imports into Finland have grown steadily over the past few years. Imports account for just over 20 per cent of soft drink consumption in Finland.
“The danger is that soft drink imports from low-cost countries will further increase and domestic production will decrease. This will have an impact on both profitability and employment in the industry,” says Ussa.