The Ethical Dilemma Behind The Postponement of Excise on Sweetened Drinks

Indonesia is one of the countries with high sugar consumption. Based on data from the United States Department of Agriculture (USDA), Indonesia ranks sixth with a sugar consumption level of 7.8 million metric tonnes.

One of the sugar-containing products that are widely consumed is Packaged Sugar-Sweetened Beverages (MBDK). MBDK is a beverage product with added sugar or artificial sweeteners packaged in cans or bottles. 

The variety of flavors and practical packaging design make this kind of product quickly popular in the community. Because it is very close to the lifestyle of modern people who demand everything practical and instant.  

Although practical and convenient to consume, MBDK can trigger serious health impacts. The added sugar or artificial sweeteners contained in MBDK can lead to obesity. In addition, the habit of consuming MBDKs can also cause spikes in blood glucose levels, which can increase the risk of developing Type 2 Diabetes Mellitus. 

Health Risks

According to data from the International Diabetes Federation (IDF), Indonesia has the fifth highest number of diabetes patients in the world with 19.47 million cases. The high number of diabetes cases not only threatens health but also has an impact on state spending in terms of financing diabetes treatment, especially on BPJS Kesehatan. 

To reduce the rate of diabetes in Indonesia, the government has also drawn up a plan to impose excise taxes on sugary drinks. The function of the excise policy here is to regulate and control public consumption of MBDK.

The way this excise duty works is by setting a tariff of a certain percentage on MBDK produced domestically or imported from abroad. The tariff scheme designed is a single tariff based on sugar content or IDR/liter with a proposed amount of IDR 650 per liter. 

Suppressing Consumption Through Excise Taxes

The imposition of excise is expected to increase production costs, resulting in an increase in selling prices. Thus, with this high selling price, it is expected that people will rethink consuming it and switch to using healthier drinking water.

Thus, the risk of people developing obesity and diabetes is getting smaller. On the other hand, for the government, the imposition of excise tax can increase state revenue and cut the health budget.

The mechanism for implementing the MBDK excise tax has been reviewed by the Ministry of Finance together with the Ministry of Health since 2019. The implementation is also designed to be implemented in 2023. 

Economic Constraints

In Presidential Regulation (Perpres) No. 130 of 2022 on the Details of Tax Revenue of the 2023 Draft State Budget, includes the MBDK excise tax totalling IDR3.08 trillion. However, in July 2023, the government decided to postpone the implementation of the MBDK excise tax to 2024. 

So, what exactly is the reason why the government is not rushing the implementation of the MBDK excise tax? Isn't Indonesia already facing an obesity and diabetes emergency?

The Minister of Finance, Sri Mulyani, asserted that her party is still considering many things to formulate this MBDK excise policy. One of the considerations is the condition of the domestic economy which is still recovering. 

Furthermore, the Director General of Customs and Excise, Askolani, also revealed the reasons for the postponement of the MBDK excise policy. Askolani said that further discussions are still needed by the Ministry of Finance with the House of Representatives, adjustments to the actual conditions of national and global economic recovery affected by COVID-19, and the need for mature regulations in the form of Government Regulations (PP). Askolani also promised that the excise tax on MBDK will be implemented in 2024.

Irrelevant Reason

The Centre for Indonesia's Strategic Development Initiatives (CISDI), also spoke out regarding the postponement of the implementation of the MBDK excise tax. According to CISDI, this postponement could increase the health risks that threaten the public. 

One of the reasons for postponing the MBDK excise tax, namely the economic conditions that have not yet recovered due to the impact of the COVID-19 pandemic, is considered irrelevant. This is because the excise tax will only be levied on sugar-sweetened beverages, not on the basic needs of the community. Thus, this excise tax will not make it difficult for people to fulfill their basic needs.

Furthermore, CISDI's Project Lead Food Policy, Calista Sagalita, said that the country's economic condition is more correlated with health conditions. This is because, in 2019, the amount of health costs (BPJS) incurred by the government due to diseases related to sugar consumption reached a fantastic figure of IDR108 trillion. This should encourage the implementation of the MBDK excise tax to be implemented immediately considering that the state needs revenue due to the plummeting economic conditions.

Learning from Other Countries

In several countries, such as Chile, Hungary, Thailand, the United Kingdom, Mexico, and Saudi Arabia, the implementation of MBDK excise has proven to have a positive impact on reducing MBDK consumption by 8-10%. 

In Mexico, since January 2014, an excise tax on MBDK was introduced at a rate of 10% or one peso per liter. The impact was a decrease in sales of MBDK by an average of 6-8%, and sales of beverages that were not subject to excise duty increased by 4-6%. During its first year, the excise tax on MBDK in Mexico generated approximately USD 1.2 billion.

In addition to Mexico, a levy on the soft drinks industry was introduced in the UK in 2018. Soft drinks with less sugar per liter are subject to a lower excise duty, and drinks without added sugar are exempted from excise duty. 

The results proved that the volume of sugar-sweetened beverages containing more than 5 grams of sugar per 100 ml decreased by 50%. As a result of the MBDK excise, revenues in the UK are estimated at USD 308 million per year.

The fact that the excise tax on MBDK is a crucial issue cannot be avoided. Delaying the implementation of this excise tax may give the government some room to think. However, it is important to remember that Indonesia's public health is in a worrying phase given the high rates of obesity and diabetes in the country.

Looking at countries that have successfully achieved their goals in the implementation of the MBDK excise policy, should be an encouragement for the Indonesian government to no longer delay the implementation of the MBDK excise, but to immediately solidify and enforce it. (ASP/KEN)

 

*The author is a student of the Faculty of Fiscal Administration, University of Indonesia 

Disclaimer! This article is a personal opinion and does not reflect the policies of the institution where the author works.