R&C Trendwatch

Anticipating the rise of junk food and soda taxes in emerging markets

Governments in emerging markets are increasingly using sin taxes as a way to address rising public health concerns and stretched public finances. Sin taxes are typically levied on tobacco and alcohol, but authorities are also imposing them on food and beverages high in sugar and fat content. Earlier this year, Mexico unexpectedly implemented a tax of 10% on every liter of sugar-sweetened drinks and an 8% excise tax on high-calorie food—a move deemed necessary to address Mexico’s obesity rate, the highest in the world at 32.8%. Though sin taxes are appealing as a means to moderate consumption of products considered harmful to the population, an equally influential driver may be a government’s need to raise revenue. Sin taxes are therefore more likely in a context of slowing growth, a high deficit, and weak tax collection, especially if political dynamics make the public more amenable to such a tax. Moreover, sin taxes appear to have a domino effect: If one country adopts them, regional peers are likely to follow.