Sweetened Beverage Tax: Is it Effective in Reducing Diabetes Rates in Indonesia?

Jakarta, Ideatax -- In a report, the Ministry of Health, Ministry of BAPPENAS, and UNICEF (2019) reported that there has been an increase in the prevalence of obesity in Indonesia. The Ministry of Health et al. (2019) stated that one in three adults over 18 in Indonesia was obese in 2018. The report mentioned that one in five children aged 5–12 years were overweight.

 

The increase in obesity prevalence is partly due to excessive consumption of sugar-sweetened foods and beverages. As a result, there is an increase in the burden of non-communicable diseases that result in death. For instance, in 2018, 73% of deaths in Indonesia were caused by noncontagious diseases.

 

To reduce the prevalence of obesity, the Indonesian government plans to implement an excise tax on sweetened beverages. In the 2024 Macroeconomic Framework and Fiscal Policy Principles, or Kerangka Ekonomi Makro dan Pokok-Pokok Kebijakan Fiskal (KEM PPKF), the Ministry of Finance (2023) states that one of the customs and excise policies to be implemented in 2024 is to add new excise objects and the realization of excise tax collection and plastic products and sweetened beverages in packaging (BKF 2023).

 

Although the Ministry of Finance did not elaborate more on the design of excise on sweetened beverages, it is known that, based on current media information, the Directorate General of Customs and Excise is preparing regulations regarding excise tax on sweetened beverage. The state revenue target that will be collected from this new excise object is $3.08 trillion (CNBC 2023).

 

The Ministry of Health et al. (2019) stated that there are five main objectives of implementing an excise tax on sweetened beverages:

1. Increasing the retail purchase price of sweetened beverages,
2. encouraging a shift to safe drinking water consumption,
3. changing the norms in society regarding the habit of consuming sweetened beverages,
4. reducing sugar intake in the population, and
5. generating government revenue that can be reinvested in public health.

 

Based on the description above, we can see that the primary purpose of an excise tax on sweetened beverages implementation is to reduce the consumption of sweetened beverage through the increasing price of packaged sweetened beverage. The state revenue from the excise tax on sweetened beverages can also be utilized to improve public health through an increase in the social security budget.

 

Several studies have shown that the excise tax imposition on sweetened beverages by 10% will reduce the consumption of sweetened beverages by 8–10%. In addition, an excise tax on sweetened beverage of 20% will also decrease the prevalence of overweight by 1–3% and the prevalence of obesity by 1–4% (Ministry of Health et al., 2019).

 

Several countries have implemented excise taxes on sweetened beverages. The UK, for example, introduced a levy on sweetened beverages in 2016. The UK government imposes lower levy rates on beverages with lower sweetener content. The UK government does not impose sugar-sweetened excise duty on packaged beverages without added sweeteners.

 

On the other hand, the Mexican government imposed a 10% excise tax on sweetened beverages in 2014. The imposition of an excise tax on sweetened beverages in Mexico was able to reduce the sales of sweetened beverages by 6–9% in 2014. The implementation of an excise tax on sweetened beverages was able to generate state revenue of USD 1.2 billion in 2014.

 

Although the excise tax on sweetened beverages imposition is considered to be able to reduce the prevalence of obesity and diabetes, the implementation of this policy must be gradual and careful. In other words, if this policy is implemented without careful consideration and adequate socialization, it is feared that it will cause externalities in the form of the emergence of illegal sweetened beverage products.

 

In designing an excise tax on sweetened beverages, the government needs to set a target, communicate the importance of excise tax on sweetened beverage, develop supporting policies to facilitate access to free and safe drinking water, and determine the allocation of excise tax proceeds on sweetened beverage.

 

References

BKF. 2023. Kerangka EKonomi Makro dan Pokok Pokok Kebijakan Fiskal 2024. Jakarta: BKF, Kemenkeu.

CNBC. 2023. Cukai Minuman Berpemanis Berlaku 2024, Ini Rinciannya! September 23. Accessed Mach 02, 2024. https://www.cnbcindonesia.com/news/20230926183706-4-475770/cukai-minuman-berpemanis-berlaku-2024-ini-rinciannya.

Kementerian Kesehatan, Kementerian PPN/Bappenas, UNICEF. 2019. Ringkasan Kebijakan Cukai Untuk Minuman Berpemanis. Jakarta: Kementerian Kesehatan, Kementerian PPN/Bappenas, UNICEF.