Mexican Government Proposes Special Tax on Sugary Beverages - Update
--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
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
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 firstname.lastname@example.org
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