Tax & Accounting Blog

New Junk Food Levy in Mexico may affect Mexican Coca-Cola’s Taste

Blog, Indirect Tax, ONESOURCE, Transaction Tax, VAT Tax Rates November 13, 2013

Food is money and money is food.

On October 31st, 2013 the Mexican Congress  has approved  a tax bill imposing 8% sales tax on high calorie foods and a tax of 1 peso, or 7 cents USD on every liter of sugary drinks. The bill will become law after President Enrique Peña Nieto signs it. This step is a formality as the bill was drafted by Nieto’s political alliance.

The ‘junk food tax’ is a result of President Nieto’s plan to  improve the well-being and health of Mexicans, among other reforms. The research shows  that the obesity rates for Mexico are very high and even higher than those of the US. According to the United Nations’ Food and Agriculture Organization (FAO), 32.8% of adult Mexicans are obese while 31.8% of US adults are in the same category. With current soda consumption  the government expects to generate just under $1 billion from the taxes the law introduces.

In response to the new tax Latin America’s Coca-Cola stocks closed down 1.28% at 159.02 pesos. The soda giant considers changing the recipe by switching from the more expensive  cane sugar to more fructose which is considerably cheaper. Cane sugar and not high-fructose corn syrup is what made “Mexicoke” a cult hit in the US.

This tax could have a global impact as Mexico is “the first of the large soft-drink consumer markets to impose a significant excise tax on full-calorie soft drinks,” according to analysts at Credit Suisse. Other countries and jurisdictions may consider similar measures.