Knowledge Brief Health, Nutrition and Population Global Practice TAXES ON SUGAR- SWEETENED BEVERAGES: INTERNATIONAL EVIDENCE AND EXPERIENCES Libby Hattersley, Alessia Thiebaud, Alan Fuchs, Alberto Gonima, Lynn Silver, Kate Mandeville October 2020 KEY MESSAGES: • Sugar-sweetened beverages (SSB) are a major source of excess sugar and energy in diets • There is strong evidence linking excess sugar and SSB consumption to a range of adverse health effects, including obesity, type 2 diabetes, and cardiovascular disease • Many countries are choosing to tax SSB as a fiscal policy for health, and more than 40 taxes have been introduced since 2014 at city-, region-, and country-level. Introduction are not reflected in the prices charged for SSB. Corrective Taxes on SSB are an increasingly popular fiscal policy for taxes can help to incentivise consumers to reduce their health. This brief summarizes the latest evidence on SSB consumption to a level that takes these costs into account. tax implementation and effectiveness to support There is strong evidence that corrective taxes have governments who are considering, or are in the process of effectively reduced consumption of other harmful products, developing, an SSB tax. Further details and references can such as tobacco and alcohol. be found in the accompanying report (World Bank 2020). BOX 1. WHAT ARE SSB? SSB are defined as: non-alcoholic beverages containing Why tax SSB? added caloric sweeteners, such as sucrose, high- SSB are a key contributor to excess sugar and dietary fructose corn syrup, or fruit juice concentrates. This energy intakes in countries around the world (Pereira et al includes carbonated soft drinks, energy drinks, sports 2015; Sánchez-Pimienta et al 2016; Marriot et al 2019), drinks, concentrates or syrups, less than 100% fruit or yet provide little-to-no nutritional value. Their consumption vegetable juices such as juice drinks or nectars, ready- is strongly linked to a range of adverse health effects to-drink teas and coffees, sweetened waters, and including tooth decay, excess weight gain, and increased sweetened milk-based drinks. risk of cardiovascular disease, cancer, and type 2 Sugary drinks, a related term, encompasses all types of diabetes (Table 1). An estimated 184,000 deaths and 8.5 beverages containing free sugars, including those million disability-adjusted life years worldwide were naturally present, such as in 100% fruit juices. attributed to SSB consumption in 2010 (Singh et al. 2015). Both definitions exclude low/zero-calorie beverages (artificially sweetened beverages) containing intense The substantial health and social costs imposed by SSB sweeteners such as aspartame, sucralose, saccharin, or on individuals (internalities) and on others (externalities) stevia. Page 1 HNP GP Knowledge Brief • Table 1. SUMMARY OF EVIDENCE OF HEALTH RISKS LINKED TO SSB Health risks Nature of evidence Weight gain, overweight, Strong, consistent evidence of direct, causal relationship obesity Type 2 diabetes Strong positive association (independent and through weight gain) Tooth decay Strong positive exposure-response relationship Metabolic syndrome Positive association (independent and through weight gain) Cardiovascular risk factors Strong positive association with coronary heart disease (independent and mediated by body mass and outcomes index); association with stroke less clear Cancer Positively associated with increased risk of at least 12 cancers (independent and through weight gain) All-cause and cause-specific Positively associated with higher risk of death from all causes. Linked to 184,000 deaths worldwide: mortality 76% in low- and middle-income countries and 72% related to type 2 diabetes Source: World Bank 2020. In many parts of the world, SSB are cheap, accessible, Specific taxes can utilize tiered or sliding-scale designs to heavily marketed, and widely consumed. SSB sales apply different tax rates depending on volume or sugar volumes are stagnating in some high-income countries content. Single-tier volume-based taxes are the most (albeit at very high levels) but are growing strongly in low- common design of excise taxes introduced on SSB to date, and middle-income countries (Baker et al 2020; World with nearly half (46%) of current excise taxes using this Bank 2020) (Figure 1). design, although sugar-based taxes are considered to offer maximum health benefits because they directly target the harmful ingredient (World Bank 2020). SSB taxes around the world Global momentum on SSB taxes has grown considerably How SSB taxes work since 2014, when Mexico introduced a tax on SSB against Designing and implementing a successful SSB tax requires fierce opposition. More than 40 SSB taxes have been a clear understanding of the pathways of effects through introduced since then, including at city-, region-, and which SSB taxes can be expected to lead to specific country-level. SSB taxes are now in effect in more than 50 outcomes. Figure 3 presents a theory of change outlining jurisdictions worldwide (World Bank 2020, Figure 2). Although some jurisdictions have opted to raise import these pathways and the four key mechanisms through duties or goods-and-services type (GST) taxes (e.g., value- which SSB taxes operate: added tax, VAT) on SSB, excise taxes are the most 1. Increasing retail prices commonly used instrument to tax SSB. Excise taxes are levied on a particular product, typically at the point of 2. Raising public awareness manufacture or distribution. Excise taxes can be specific (based on the volume or sugar content of the SSB) or ad 3. Incentivizing non-price industry responses valorem (based on a percentage of product value). 4. Mobilizing government revenue FIGURE 1. SSB SALES BY COUNTRY INCOME GROUP, 2003-2017, WITH PROJECTIONS TO 2022 Source: Euromonitor Passport Notes: HIC = high-income Countries; UMIC = upper-middle-income countries; LMIC = lower-middle-income countries; LIC = lower- income countries Page 4 HNP GP Knowledge Brief FIGURE 2. EXCISE TAXES ON SSB WORLDWIDE Evidence for each mechanism is summarized below. have an effect on public awareness and opinion, and potentially consumption behavior, which can lay the 1. INCREASING RETAIL PRICES groundwork for future attempts. This mechanism has not By raising retail prices, SSB taxes aim to encourage been studied widely, but there is some evidence for consumers to reassess their preference for SSB at point- increased public awareness from Hungary, Mexico, and of-purchase (Hawkes et al. 2015). Food and beverage California (World Bank 2020). prices at point-of-purchase have a powerful influence on consumer behavior. Taxes that are visible to consumers 3. INCENTIVIZING NON-PRICE INDUSTRY (reflected in the shelf price) and that raise retail prices by RESPONSES at least 20 percent across a broad range of beverages are Well-designed SSB taxes can stimulate and incentivize likely to be most effective at discouraging purchasing desirable industry responses, such as reformulation of SSB (Afshin et al. 2017; Waterlander et al 2019). to lower the sugar content, along with changes to product portfolios, packaging sizes, and marketing strategies. One important measure of the effectiveness of an SSB tax Tiered taxes with a strong design and sugar-based taxes is the pass-through rate; that is, the extent to which a tax is provide the greatest incentive for reformulation because passed on to consumers in the form of retail price increases they encourage manufacturers to lower the sugar content (as opposed to being absorbed, wholly or in part, by supply of their portfolios to avoid higher tax rates. Evaluations of chain actors). Internationally, experiences with SSB tax tiered volume-based taxes introduced in the UK and implementation show that retail prices do increase with Portugal, as well as South Africa’s sugar-based levy, SSB taxes, although pass-through rates vary from below identified significant reformulation responses (Goiana-da- 50% to almost 100% (World Bank 2020). Silva et al. 2018, Roache and Gostin 2017; Scarborough, Adhikari, and Harrington 2020; Stacey et al. 2019). For 2. RAISING PUBLIC AWARENESS example, in the UK, there was an average 11 percent A well-designed and visible SSB tax can disincentivize reduction in sugar content in SSB before the tax was even consumption by raising awareness about the detrimental introduced, with an average 29% reduction under the tax effects of sugar and SSB consumption, and by signaling (Public Health England 2018, 2019). that the government views this issue as a priority. This effect on public awareness can start while an SSB tax proposal is still being considered and debated. Even if a tax 4. MOBILIZING DOMESTIC REVENUE As a ´fiscal policy for health´, SSB taxes are primarily proposal is ultimately unsuccessful, the process can still aimed at discouraging consumption rather than raising Page HNP GP Knowledge Brief • FIGURE 3. SSB TAX THEORY OF CHANGE Notes: *Evidence of association with stroke is less clear; DALY = Disability-Adjusted Life Year; HALY = Health-Adjusted Life Year; QALY = Quality- Adjusted Life Year revenue. The revenue generated by SSB taxes can be “soft for changes in consumption. Although imperfect, sales and earmarked” for welfare-generating programs, which, when purchase data can provide a reasonable picture of used alongside the public health argument, can boost population-level changes in consumption, provided the public and political support for a tax. Revenue may also be data sets are sufficiently large (Bandy et al. 2019). used to compensate for any transitional costs or short-term displacement of productivity in affected sectors. International experiences show that, when an SSB tax is passed through, it can reduce sales and purchases of International experiences have shown that revenue taxed beverages. Higher taxes have the greatest effects on generation is difficult to predict with any precision. This is SSB sales. A 100% excise tax on energy drinks in Saudi particularly the case when a tax is successful in reducing Arabia, for example, led to a 58 percent drop in sales of sales and/or incentivizing product reformulation. For these drinks in the first year (Alsukait 2020). More typically example, despite evidence of reformulation, South Africa’s though, SSB taxes around the world have been SSB levy reportedly exceeded forecasts, generating implemented at effective rates of roughly 10%, leading to around US$140 million or US$2.5 per capita in the first year more modest reductions in sales after one year ranging (Stacey et al. 2019), whereas Portugal’s SSB tax from around 4% in Barbados (Alvarado et al. 2019) to 39% generated US$90 million, or US$9 per capita (Goiana-da- in Philadelphia (Roberto et al. 2019). Silva et al. 2018). In addition to shifting demand for targeted beverages, SSB Failure to generate predicted revenue may be used later by taxes can influence demand for substitute or opponents to undermine support for a tax, as was the case complementary products, such as bottled water and in Philadelphia, therefore it is prudent to avoid making low/zero-calorie sweetened beverages. For this reason, overly optimistic claims for revenue generation. SSB taxes need to be designed in a way that minimizes scope for substitution of equally (or more) unhealthy Evidence that SSB taxes work untaxed products, and consumers need to be able to access acceptable, healthier substitutes. Most EFFECTS ON SALES/PURCHASING implemented SSB taxes currently exclude low/zero-calorie Evaluations of implemented SSB taxes have typically sweetened beverages from the tax base, to encourage collected sales and/or purchasing data as proxy measures switching toward these beverages, although there is some Page 6 HNP GP Knowledge Brief emerging evidence of potential adverse health effects from Alsukait, R. 2020. Evaluating Saudi Arabia’s Sugar Sweetened Beverage these drinks too (World Bank 2020). Tax: A Mixed Methods Approach. Doctoral Dissertation, Tufts University. January 2020. EFFECTS ON CONSUMPTION A relatively small number of SSB taxes have been Alvarado, M., N. Unwin, S. J. Sharp, I. Hambelton, M. M. Murphy, T. A. evaluated for their effects on self-reported consumption. Samuels, M. Suhrcke, and J. Adams. 2019. Assessing the Impact of the Most of these evaluations have been for city-level taxes in Barbados Sugar- Sweetened Beverage Tax on Beverage Sales: An the US and have typically involved small-scale telephone, Observational Study. International Journal of Behavioural Nutrition and web-based, or street intercept surveys. Ideally, national Physical Activity 16 (1): 1–13. taxes will be evaluated with large national studies with consistent measurement of dietary intake trends over time. Backholer, K., M. Blake, and S. Vandevijvere. 2017. “Sweetened Beverage Taxation: An Update on the Year That Was 2017.” Public Health EFFECTS ON HEALTH OUTCOMES Given that most health-related SSB taxes have been in Nutr. 20:3219–24. effect for a few years or less, it will be some time before Baker, P., and S. Friel. 2014. Processed Foods and the Nutrition evidence of their long-term impacts on health and health- Transition: Evidence from Asia. Obesity Reviews 15 (7): 564–577. care costs is available. However, modelling studies predict that SSB taxes can lead to significant reductions in Bandy, L., V. Adhikari, S. Jebb, and M. Rayner. 2019. The Use of disability-adjusted life years, prevalence and incident rates Commercial Food Purchase Data for Public Health Nutrition Research: A of obesity and type 2 diabetes, and dental caries, as well Systematic Review. PLOS ONE 14(1): e0210192. as health care expenditures, provided a sufficiently large tax rate is applied (Bourke and Veerman 2018, Saxena et Bourke, E. J., and J. L. Veerman. 2018. The potential impact of taxing al. 2019) sugar drinks on health inequality in Indonesia. BMJ Glob Health 3: Arguments against SSB taxes e000923. Opponents of SSB taxes often argue that these taxes are Cawley, J., and D. Frisvold. 2017. The Pass-through of Taxes on Sugar- not effective, are regressive, negatively affect employment Sweetened Beverages to Retail Prices: The Case of Berkeley, California. and economic growth, and/or violate international, regional, J. Policy Anal. Manag. 36:303–26. or national law. However, these arguments are not supported by independent evidence, as summarized in two Goiana-da-Silva, F., A. M. Nunes, M. Miraldo, A. Bento, J. Breda, and F. accompanying Knowledge Briefs (Hattersley et al F. Araújo. 2018. Using Pricing Policies to Promote Public Health: The 2020a,b). Sugar Sweetened Beverages Taxation Experience in Portugal. Acta Med Port 31 (4): 191–195. Conclusion Like tobacco and alcohol taxes, SSB taxes are a ´triple win´ Hattersley, L; Fuchs, A; Gonima, A; Silver, L; Mandeville, K. measure - they improve health outcomes and reduce 2020a. Business, Employment, and Productivity Impacts of Sugar- healthcare costs, are a new source to mobilize revenue, Sweetened Beverages Taxes. Health, Nutrition and Population and increase productivity. Knowledge Brief. Washington, D.C.: World Bank Group. Obesity and diet-related NCDs are complex, multifaceted Hattersley, L., Thiebaud, A., Silver, L., Mandeville, K. 2020b. Countering issues that will not be solved by a single policy measure. Common Arguments Against Taxes on Sugary Drinks. Health, Nutrition SSB taxes need to be implemented as part of a wider and Population Knowledge Brief. Washington, D.C.: World Bank Group. government approach to incentivizing and supporting healthy diets and promoting population health and Hawkes, C., T. G. Smith, J. Jewell, J. Wardle, R. A. Hammond, S. Friel, wellbeing more broadly, based on global best practice A. M. Thow, and J. Kain. 2015. Smart Food Policies for Obesity recommendations (WHO 2017). Prevention. Lancet 385:2410–21. References James, E., M. Lajous, and M. R. Reich. 2019. 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Processed Foods and Nutrition Transition in the Pacific: Regional Trends, Patterns and This HNP Knowledge Note highlights findings from a World Bank program Food System Drivers. Nutrients 11 (6): 1328. to support governments around the world to design and implement SSB taxes. Financial support for this work was provided by the Government of Singh, G. M., R. Micha, S. Khatibzadeh, S. Lim, M. Ezzati, and D. Japan through the Japan Trust Fund for Scaling Up Nutrition. Mozaffarian. 2015. Estimated Global, Regional, and National Disease Burdens Related to Sugar-Sweetened Beverage Consumption in 2010. The Health, Nutrition and Population Knowledge Briefs of the World Bank are a quick reference on the essentials of specific HNP-related topics summarizing new findings and information. These may highlight an issue and key interventions proven to be effective in improving health, or disseminate new findings and lessons learned from the regions. For more information on this topic, go to: www.worldbank.org/health. Page 8