05.01.2024

Article published on the Uzbek kun.uz website. 

Uzbekistan is introducing an excise duty of 500 sums on one-litre carbonated drinks containing sugar and 2,000 sums on energy beverages. Is the aim really to encourage healthy lifestyles and, if so, will it be a success?

From 1 April this year, Uzbekistan will be imposing an excise tax of 500 sums on one-litre carbonated drinks containing sugar. This will be given effect by amending the Tax Code that forms part of the agreed State budget for 2024.

The Ministry of Economy and Finance has said that a World Health Organisation recommendation for imposing an additional levy on soft, sugary drinks and other sweeteners was a factor in its decision to introduce this new policy. All revenues generated will be donated to the Medical Development Fund.

In addition, a tax of 2,000 sums on one-litre energy and stimulant drinks has been introduced by a group of Legislative Chamber deputies.

Stated objectives

The main reason behind introducing a sugar levy at the national level is to alleviate the problems caused by excess weight and obesity among the population, as well as to arrest increases in the number of diabetes cases.

An Action on Sugar study undertaken in 2014 found that 79% of 330 ml carbonated drinks contain six or more teaspoons of sugar which is the equivalent of the maximum adult daily dosage. Another research study published in the leading British Medical Journal The Lancet stated that there were 529 million diabetes sufferers worldwide in 2021, with the figure expected to reach 1.31 billion by 2050. A 49.6% increase in the incidence of diabetes is linked to obesity.

Carbonated drinks can have the following harmful effects on health:

• Research carried out in 2020 involving 5,147 children aged 11, 13 and 16 found a link between carbonated drink consumption and aggression, as well as depression;
• Phosphates used in carbonated drinks, as well as in many other processed foods, can accelerate the aging process. They can also cause chronic kidney disease and are bad for the cardiovascular system;
• A 2019 British Medical Journal study involving 101,257 participants between the ages of 5 and 18 found that drinking sugary beverages can increase the risk of cancer, particularly breast cancer. Specifically, it concluded that drinking 100 ml of sugary beverages each day increases the risk of cancer by 18%;
• There is a link between sugary drinks and deaths from heart disease, with each additional sweet beverage consumed daily increasing the risk of death from cardiovascular disease by 10%;
• Sugary drinks increase the likelihood of developing type 2 diabetes. In 2009, the American Diabetes Association reported that consuming one or more carbonated drinks a day increases the risk of diabetes by 67%;
• According to a ten-year study of 749 adults that ended in 2015, those who drank soda every day were nearly four times more likely to develop abdominal obesity than those who no longer drink such products;
• In 2020, scientists found that greater consumption of carbonated drinks was linked to an increased risk of dementia and strokes;
• Carbonated drinks can damage the liver and teeth, in particular increased tooth decay and erosion. Experts recommend not brushing your teeth immediately after consuming carbonated drinks as the acid softens the structure of the teeth and can result in tooth loss.

An unworkable regulation and unapproved draft

Many countries around the world have various legal restrictions on the sale of energy drinks, including Uzbekistan. Under Article 37 of the Law on Advertising, energy drink promotions must have a health warning about the damage that can be caused by excessive consumption, as well as information about those who should avoid these products.

Energy drink adverts must not:

• Depict people who have achieved success in sport;
• Give the impression that the consumption of energy drinks is necessary for social or sporting success, or to improve physical and mental wellbeing.

In addition, it is prohibited to sell energy drinks to persons under 18 years of age. Under Article 164 of the Administrative Liability Code, anyone who violates this rule will be fined between 5 and 10 BRV and between 7 and 15 BRV for legal entities.

However, enforcement of these regulations has been largely ineffective as it is very rare for a person buying such products to be asked their age or refused a sale. Experts argue that these beverages can have adverse effects on teenage health but that restrictive measures are not always the answer.

A draft regulation prepared by the Ministry of Health recommended a ban on the sale of sweet, carbonated and energy drinks, as well as on fast food within 500 metres of schools from 1 September 2022. However, for some unknown reason, this was not approved.

According to the draft regulation “There are still problems concerning the diet of adolescents. For example, a 2017 study concluded that the number of children and adolescents between 5 and 19 years of age who are overweight has increased from 8.4% to 16.3% among boys, and from 11% to 17% among girls. Obesity levels among boys has risen from 2% to 5%, and from 1% to 3% among girls. Poor diet and a lack of micronutrients in girls can cause major complications in future pregnancies”.

In summary, it appears that the aim of introducing an excise duty on carbonated drinks is more about replenishing the State budget rather than concern about people’s health, not to mention the difficulties involved in implementing existing legislation. All the while, a regulation aimed at improving teenage health has remained a draft.

The international context

The draft regulation also stated that “Taxation on drinks containing sugar or other sweeteners was first introduced in countries such as Belgium, Finland, France, Hungary, Ireland, Latvia, Monaco, Norway, Portugal and the UK, and since 2016 has been extended to other States. Today, more than 50 countries have an excise tax on these types of drinks. A similar levy has also been introduced in CIS Member States, namely Russia, Kyrgyzstan, Tajikistan and Azerbaijan. In EU countries, the tax rate is 0.07 to 0.2 Euros per one litre of drink: in Russia, seven roubles (or 0.07 US$); in Ukraine – 0.1 Euros”.

According to our research, the world’s first excise tax on sugary carbonated drinks was introduced in Denmark in 1930 but was abandoned in 2013 after illegal sales of these drinks became uncontrollable. The Australian Government also has a similar tax in order to encourage the consumption of beverages with low or no sugar content.

Other research has also shown that the introduction of a “sugar tax” in Mexico in October 2013 led to reduced consumption. As a result, sales of carbonated drinks fell by 6% the following year, while purchases of water and non-taxed drinks went up by an average of 4%.

In general, studies conducted by a number of research centres have concluded that imposing a tax on sugary carbonated drinks leads to a decrease in their consumption. However, other research has shown that this policy has had limited success as it is forcing people to increase their intake of alternative, non-taxed high-calorie products.

How will the new tax affect prices?

The distribution of the tax burden between consumers and retailers depends on the price flexibility of sweetened carbonated beverages. If the price flexibility of demand is higher than that of supply, the tax burden falls more on the retailer and if the opposite is true, on the buyer. In this respect, the impact of excise duty on price increases varies from country to country. In addition, the tax burden may affect various social groups differently. For example, in Mexico, 63.7% of the “sugar tax” burden falls on the lowest social classes.

Deputies of the Oliy Majlis Legislative Chamber have not yet discussed the implications of the new tax on prices and businesses.

Should an excise levy on sugary carbonated drinks be introduced?

The economist Valijon Turakulov told kun.uz that introducing a tax on these types of drinks is generally a positive move but that the Government should offer people alternative, cheap and healthy beverages in order to ensure this is not a regressive measure.

“Overall, this is a positive step. For instance, other countries have imposed a “fat tax” on fast food chains. The aim is to reduce consumption so that people do not become overweight. Increases in obesity levels among the population leads to inefficiencies in the economy. The introduction of an additional sugar only tax could have major consequences and affect the price of many goods. A levy on carbonated drinks to reduce consumption is a good thing, with revenues raised going to the Medical Development Fund”.

“However, the downside to this is the fact that a lot of small businesses produce sugary carbonated drinks. The Government should therefore help them make the switch to low-sugar products or natural drinks. Social movements and networks should also be called upon to inform the public about the harmful effects of carbonated beverages and recommend other natural alternatives”.

“Another aspect is that drinks such as Coca Cola and Pepsi are mainly consumed by low-income groups, so introducing such a levy could be seen as “taking from the poor to give to the rich”, in other words, a regressive tax. In this case, the tax burden falls more on the poor and benefits those who are very well-off”.

“Reducing economic inequalities in society through taxes is extremely difficult, yet very easy to increase such disparities with them. This should not be allowed to happen. The revenue raised should, therefore, be used more for the benefit of the poor. In addition, changes to the state of people’s health should be monitored to determine the success or otherwise of the tax”.

“All in all, this is a necessary tax which is already levied in many other countries. But the Government will need to help small businesses and the public offered cheap and healthy alternatives. The tax should not be regressive with studies undertaken to include an assessment of the pros and cons of this tax policy”, said Valijon Turakulov.

Doston Akhrorov

Source: https://kun.uz/ru/news/2024/01/05/nalog-na-sladkiye-gazirovannyye-napitki-srabotayet-li