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PL

2020-03-11

Analysis 2/2020: Sugar Tax is a Tax on the Poor

Synthesis:

 

  • The government draft bill on an additional tax on beverages sweetened with sugar and sweeteners, as well as those containing caffeine and taurine, was passed by the Sejm by the votes of the Law and Justice and the Leftist party. It now awaits further work in the Senate.
     
  • So far, Polish politicians have been little interested in the problem of sugar consumption and continue to promote sugar consumption through preferential VAT rates. Sugar remains subject to a reduced 8% VAT rate, even though the Law and Justice government is currently implementing a new VAT rate matrix, changing some of them. This year's budget was based on the revenues from the removal of the limit of 30 times the social security contributions. This was rightly abandoned, but the government is now looking for other sources of financing instead of reducing spending. Therefore, the objective of the sugar tax is most probably fiscal and hence the entry into force as is planned for early as July 1, 2020, during the fiscal year, regardless of the deepening problem of tax law instability.
     
  • Sugar taxes are primarily imposed on the poorest consumers. In fact, they are much more regressive than VAT, since the poorest not only pay more in relation to their income, but also more in absolute terms. Therefore, a good solution would be to focus on the health objective of the tax and use the revenues e.g. to increase the PIT-free amount. In this way, poorer consumers would receive an incentive to choose beverages free of additional tax and the negative impact on their financial situation would be limited.
     
  • The government's announcement about the allocation of sugar tax revenues to the National Health Fund is totally unreliable. An additional tax on highest earnings, called the solidarity levy, was just introduced to finance benefits for the disabled from the Solidarity Fund. Now, the Fund is also financing Law and Justice election promises, paying out the so-called thirteenth pension.
     
  • Covering with the sugar tax beverages that do not contain sugar but are sweetened with sweeteners instead can reduce health promoting stimuli. Studies show that the effect on body weight of beverages with sweetened sweeteners, compared to sugar and water, is either beneficial or neutral. Such beverages are close substitutes for sugar-sweetened beverages, so it is easier to hold on to them and reduce weight than unsweetened products at all.
     
  • Sugar taxes are not well justified. Although they limit the consumption of sweetened beverages, it remains unclear to which products consumers are switching to and what is the ultimate impact on their health. Obesity results mainly from reasons beyond the influence of sweetened beverages, such as: the lack of exercise, increasing food availability and health problems.

Author:

Rafał Trzeciakowski, economist
rafal.trzeciakowski@for.org.pl

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