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Sugary Drinks targeted in Europe by taxation on the national level and legal acts on the EU level in order to influence consumption and promote a healthier lifestyle

Written by A. Shehu

Paper category

Master Thesis


Political Studies




Master Thesis: Taxation as a tool for unhealthy products According to Schenck and Oldman, taxes are usually classified as direct taxes or indirect taxes. Direct tax is a tax that is assessed based on the property, business or income of the tax target individual. On the other hand, indirect taxes are levied on goods. The consumer is the person who pays for the product while paying the market price; indirect taxes are part of the final price (Schenk & Oldman, 2007, pp. 5-6). Mill explained in his "Principles of Political Economy" that the difference between direct tax and indirect tax is based on the ultimate occurrence of the tax burden. If the authority levies a tax on a given subject, this shifts the actual financial burden of this tax To another subject, then we have indirect taxes. Influence and destiny are not on the same person. (Mill, 1885) If an individual/subject who pays a tax to the collection agency cannot transfer it to another subject and its income actually decreases due to the tax, then we can apply for direct tax. Quoting Mill’s words, "The taxation is direct when it affects and happens to the same person." (Mill, 1885) The World Trade Organization Agreement defines "direct taxation" as "on wages, profits, interest, rent, royalties, and all other forms." Taxes levied on revenues. Income" and "indirect taxes" as "sales tax, consumption tax, turnover, value-added, franchise, stamp duty, transfer tax... and all taxes and fees except direct taxes and import fees" (Schenk & Oldman , 2007, p. 5) -6). The government needs revenue to fund state expenditures. Ensuring income is the primary goal of taxation. Other goals that certain taxes may achieve are secondary goals (such as income redistribution or health goals in our case) (Lang et al., 2009). Any government has three possibilities to raise funds for its expenditures:-Income tax (payroll/income tax, corporate profit tax, or direct tax). -Consumption taxes (value added tax, consumption tax, income tax, ie indirect tax). -Printing money (Lang, et al., 2009). In theory, although all consumption taxes are economically similar and they all achieve the same goals, in practice there are important differences between them in raising funds (Lang, et al., 2009). When taxation is implemented in combination with market economy factors, it may have unpredictable consequences on the final result, such as: 1-fairness of tax burden distribution 2-neutrality, respect for the choices of producers and consumers 3-tax distribution (destination) Principles) 4-Minimize management and compliance costs 5-Limit the ability of special interest groups to interfere with tax bases and tax rates (political soundness) (Lang et al., 2009). 2.2 Taxes on sugary beverages According to Francis, when it comes to sugary beverages, there are 5 possible ways to levy taxes:-Sales tax: an existing tax that applies to many states and other countries/regions in the United States. This retail or trade tax depends on the retail price of the beverage. Expensive sugary drinks, such as energy drinks, face higher taxes than cheaper drinks (Francis, et al., 2016). -Volume tax: As the name suggests, this tax is based on the number of sugary drinks (Francis, et al., 2016). -One level tax: This amount tax is more detailed than the previous one. It only applies to beverages with a sugar content above a certain level. An example of a country's primary tax on sugar-sweetened beverages is Hungary, which targets beverages containing 8g/100ml or more of sugar (Francis et al., 2016). -Secondary tax: This amount of tax also depends on the sugar content. Unlike the Tier 1 tax, two thresholds apply. If the sugar content of the beverage exceeds the first threshold, a specific tax rate applies. If the sugar content exceeds the second limit, that is, higher than the first limit, a higher tax rate applies. The UK example in Chapter 3 will better describe this taxation. -Sugar contenttax: In this case, the tax is proportional to the sugar content. There is no threshold; every gram of sugar is included in tax. Taxes vary based on sugar content (Francis et al., 2016). When deciding which tax model to use, there is no right or wrong choice. Different governments often achieve different results when taxing. “The best tax design depends on the relative importance of policymakers in curbing sugar consumption, increasing income, and reducing the burden on consumers in the new economy” (Francis et al., 2016). -If legislators are interested in reducing sugar intake in sweets and beverages as much as possible, the final design "sugar content tax" will make more sense. This model is directly related to sugar content. The higher the sugar content, the higher the tax. Although the “sales” or “quantity” tax does not specify sugar content, it does not really prevent the consumption of high-sugar beverages (Francis et al., 2016). -If the goal of legislators is to reformulate product formulas, they should target beverages with high sugar content. For example, the application of a one-tier tax would encourage producers to reduce sugar content, so as not to meet the tax level (Francis et al., 2016). -If the main goal of the legislator is to increase revenue, then a broad tax applies to all sugar-sweetened beverages, regardless of their sugar content, which is the best choice. This tax will reduce the burden on consumers because the burden will be spread to a wider variety of beverages, high in sugar and low in sugar. Read Less