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Industry NewsNFLD set to impose highest tax of its kind on sweetened beverages

NFLD set to impose highest tax of its kind on sweetened beverages

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In this article, Grocery Business takes a macro look at the news that Newfoundland and Labrador is imposing Canada’s highest tax rate of its kind on sweetened beverages, a 20-cent tax on every litre of sugar-sweetened carbonated beverage. The new tax will take effect September 1st and will apply to products including regular soft drinks, and those with added sugar, like fruit juices, iced tea and lemonades, sweetened sports and energy drinks, and some frozen fruit punches.

This is the second instance of a Canadian province implementing a so-called “sin tax.”

The first occurred in British Columbia where tax changes—the removal of a tax exemption for carbonated sugary beverages—came into effect during the summer of 2020. The province essentially applied a seven per cent tax on carbonated beverages that are sweetened. Then-finance minister Carole James said that the measure was based on seven years of health recommendations and aimed to address increases in health-care costs from the consumption of sugary drinks, which have been linked to negative health outcomes such as obesity and diabetes, as reported by CBC News.

Does such a tax impact consumer purchases?

A sugar tax was imposed in the U.K. in early 2018 and according to NielsenIQ in a later 2018 survey, sugar taxes had little impact on consumer behaviour.

NielsenIQ looked at the U.K.’s sugar tax following its implementation and found that 62 per cent of U.K. shoppers claimed to have not changed their consumption behaviour in any way post-sugar tax, and only one-fifth were checking sugar content on packages more frequently since the tax came into effect.

The findings were from a Sugar Tax Shopper survey which compared results from respondents prior to the Soft Drinks Industry Levy coming into effect.

Other findings include: Eleven per cent of shoppers claimed they planned to stop drinking sugary soft drinks prior to the tax; this number fell to just 1 per cent post-tax. The number of people who said they would continue to buy sugary soft drinks also, surprisingly, grew post-tax, increasing from 31 per cent in February to 44 per cent in June.

Before the tax was rolled out, the majority of the U.K. supported the government-imposed levy, and some even felt it wasn’t strict enough. Fifty-four per cent of respondents supported the tax, and since its implementation, 69 per cent said it should be expanded to confectionery and biscuits.

How have manufacturers responded to the implementation of sugar taxes?

In the U.K., also according to the NielsenIQ survey, although the sugar tax wasn’t as drastic as anticipated, sugar intake remained a major health concern for the majority of Britons. Even so, while the survey findings didn’t see any significant changes in consumer habits, it did find that manufacturers adapted accordingly and that most soft drinks actually fell below the sugar tax threshold.

When the tax was introduced in the U.K., Coca-Cola Great Britain responded with the following rationale for not changing its original recipe: “We decided not to change the recipe of Coca‑Cola original taste when the Government introduced a new tax on soft drinks in 2018. This meant that, unfortunately, it was subject to the new tax.

“Because the tax rate was so high on Coca‑Cola original taste, we passed on the tax in full to retailers—as the Government expected manufacturers to do. On some packs, this was done through a combination of smaller pack sizes and higher prices. For example, we replaced our 1.75L bottle with a 1.5L bottle as a direct result of the tax. We also decided to increase the size of the 1.75L bottles of Coca-Cola Zero Sugar and Diet Coke to 2L, so our zero sugar alternatives are even better value for people.

“While it wasn’t easy, we made the decision based on the views of the people who enjoy our drinks. We believe that if Coca‑Cola original taste is the drink you prefer, you should be able to choose it…If you want the great taste of Coke but without any sugar, there is Coca-Cola Zero Sugar—now in a variety of flavours.”

Social Implications

In other jurisdictions, a sugar-sweetened beverage tax has led to steep increases in the retail price of common household consumer products. As a result, this can be considered a regressive form of taxation, disproportionately affecting the consumption habits of low-income consumers. People with higher levels of education—and perhaps more knowledge about health and nutrition—are likelier to choose healthier foods, according to a report shared by the Canadian Beverage Association “Proposed Sugar Sweetened Beverage tax in Newfoundland and Labrador: a review of the business and economic implications.

In Newfoundland and Labrador, the province will raise a projected $9 million in annual revenue; a fact that is not sitting well with consumers in a period of unprecedented inflation and food costs. 

Responses 

Carolyn Fell, vice president, CBA states: “The cost of implementing this tax will put pressure on local businesses and the price increases will put pressure on consumers. Since this tax was announced fuel prices have skyrocketed. Local companies and consumers just can’t afford another hit….We stand firm in our commitment to reduce beverage calories in the Canadian diet and have made great strides in recent years without taxation. We encourage government to consider an inclusive, thoughtful, measurable, and comprehensive public outreach program in lieu of taxation.”

Sugar-sweetened beverage (SSB) tax CBA topline messages from the CBA:

  • The beverage industry is committed to helping empower Newfoundlanders and Labradorians to make decisions that support balanced and healthy lifestyles, including opting for lower or no-calorie beverages.
  • This has been tried in other jurisdictions and it has failed. It didn’t reduce obesity. It increased the price of groceries for the middle class, and resulted in job losses in the food and beverage sector.
  • The beverage industry is a leader in voluntary self-regulation and has already taken great steps to reduce the caloric content of many of our beverages including providing consumers with a range of no- and low-calorie options.
  • Through initiatives such as Clear on Calories, consumption of beverage calories is already down 20 per cent in Canada since 2004. Our latest initiative Balance Calories aims to further reduce the calories consumed from beverages by 20 per cent by 2015. 
  • Soft drinks are already taxed through GST/HST, as they are not considered grocery basics. Items such as fresh meats, fruits and vegetables, dairy and eggs are not taxed. 

 

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