Tug of War on Excise on Sweetened Drinks


The postponement of the imposition of MBDK excise rates certainly disappoints health practitioners. Even though the plan to impose excise on MBDK is a progressive policy, it is believed that it will be effective in controlling the consumption of sweet drinks.

Suddenly the government again postponed the implementation of excise on sweetened drinks in packaging or MBDK. The policy intended to control the increase in the number of people suffering from obesity and diabetes has been postponed until next year. That is, if it is not postponed again.

Actually, through Presidential Regulation Number 130 of 2022 regarding the Details of the State Budget for the 2023 Fiscal Year, President Joko Widodo (Jokowi) has instructed the Ministry of Finance to implement excise taxes on MBDK products starting this year. However, the Ministry of Finance has requested for it to be postponed until the following year.

In media reports, Director General of Customs and Excise Askolani at the time stated that the implementation of this policy required careful consideration. Firstly, this policy will be included in the framework of the preparation of the 2024 State Budget Draft, in accordance with the Tax Regulation Harmonization Law. Secondly, the timing is not yet right as the economy is still in the recovery stage. Thirdly, in order to implement this policy, the government must first prepare a government regulation (PP).

 

The threat behind the sweetness of sugar

The postponement of the imposition of the MBDK tax rate is certainly disappointing for the healthcare practitioners. The essence of this policy is to control the high consumption of sugar, so in the long run, it can prevent the increase in the number of diabetes sufferers.

Sugar is one of the triggers of obesity and diabetes, which can eventually lead to other diseases.

Actually, this policy has been planned for a long time. In 2016, the Ministry of Finance planned to implement this excise tax. The initial scenario was to implement a tax of Rp 1,000 - Rp 5,000 per liter, with the potential for additional excise tax revenue of up to Rp 3.95 trillion per year.

The daily Kompas several months ago, based on micro data from the 2021 BPS National Socio-Economic Survey (Susenas), published coverage comparing daily food and drink consumption data with the total daily calorie consumption of Indonesians.

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With a sample size of 339,670 respondents, this survey shows that there are 47.9 million people or 17.6 percent of the Indonesian population (271 million individuals) who consume excess sugar. This is a large number, with one in six Indonesians placing themselves at risk for obesity and diabetes due to their eating habits.

It is considered excessive if sugar consumption exceeds 10 percent of total daily calorie intake. The ideal daily sugar consumption standard is 10 percent of total daily calorie intake, in accordance with the World Health Organization's guidelines. Indonesians are known for their love of sugar, including rice, which is a staple food that contains a lot of sugar.

Other data shows that in the last 20 years, the consumption rate of MBDK in Indonesia has significantly increased, up to 15 times from around 51 million liters in 1996 to 780 million liters in 2014. Approximately 10 percent of the child age group even consumes this sweetened beverage 1-6 times per week.

Indonesia ranks third among Southeast Asian countries with the highest level of MBDK consumption in 2020. Please note that the acronym "MBDK" cannot be translated as it is a forbidden word in Bahasa Indonesia.

In addition to being fond of consuming excessive sugar, we are also lazy to move. The 2021 Susenas survey shows that only 27.14 percent of Indonesians aged five years and above are actively engaged in sports. The low level of physical activity among Indonesians is also recorded in the results of research conducted by Stanford University in 2017, which involved 717,527 respondents from 111 countries.

Quoted from the investigative report Kompas, this research was published in the journal Nature. This research shows that Indonesian people are in the fourth lowest position with the lowest physical activity. Only El Salvadorans, Hondurans and Pakistanis have fewer activities than Indonesians.

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Indonesians have an average of 3,513 daily steps, which is only about half (51 percent) of the highest physical activity average, that belonging to Hong Kong residents with 6,880 steps. Even amongst Southeast Asian countries, Indonesians are the laziest, falling behind Vietnam (3,643), Brunei (3,823), Myanmar (3,878), Malaysia (3,963), Philippines (4,008), Thailand (4,764), and Singapore (5,674).

Already tired of moving, consuming rice in large amounts, and enjoying excessive sweet drinks.

According to the Basic Health Research Publication (Riskesdas) 2018, the number of individuals who are overweight has doubled in the span of 10 years, from 10.3 percent in 2007 to 21.8 percent in 2018.

The condition of obesity increases the risk of chronic non-communicable diseases (NCDs), including three diseases that are the leading causes of death in Indonesia, namely stroke, ischemic heart disease, and diabetes.

The presence of Covid-19 has worsened this situation, especially for sufferers of the three aforementioned illnesses. Specifically, diabetes is the main cause in 85 percent of cases of death due to Covid-19, resulting in an increased risk of death up to 8.3 times.

The accumulation of heavy burdens caused by diabetes ultimately increases the cost of healthcare services significantly.

In the report from the Social Security Administration (BPJS) for Health Services, the cost of diabetes care has increased by 8 percent annually over the past three years, from Rp 84 trillion in 2017 to Rp 108 trillion in 2019.

The main source of this problem lies in the pre-disease factors, so the solution must also come from this aspect, namely controlling the consumption of sugar, salt, and fat.

In this context, the plan to impose a tax on sweetened beverages (MBDK) is a progressive and prevention-based policy, which is believed to be effective in controlling the consumption of sweet drinks by the community.

Funds from the taxes collected can also be allocated to finance health programs, such as assisting patients with diabetes and promoting prevention campaigns.

Such policies have already been implemented in the cigarette industry, where the continuous increase in tobacco taxes have been enforced. The revenue generated from tobacco taxes, through the national budget mechanism, is used to fill the financing deficit of the National Health Insurance or commonly known as BPJS, and also to fund tobacco control campaigns.

If MBDK were to be subject to taxation, it is hoped that the consumption of sugary drinks can be controlled, the rate of increase in obesity and diabetes can decrease, and there will be additional funds for JKN-BPJS.

 

Sweet taxes in some countries

Many countries have implemented policies to address the health risks caused by high consumption of MBDK. Some use taxes as a disincentive instrument, while others provide incentives such as tax or duty reductions if the beverage industry agrees to reduce the sugar content in MBDK products.

The imposition of disincentives and incentives is recommended by the WHO as an effective intervention instrument to control the consumption of MBDK.

As of January 2022, there are 48 countries that implement MBDK controls. The British government implemented the soft drinks industry levy (SDIL), which focuses on setting tax reduction incentives for producers. SDIL divides three categories of tax amounts based on the amount of sugar content in MBDK.

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The SDIL policy was intentionally announced in 2016, two years before its implementation in 2018, to provide an opportunity for producers to make adjustments.

France also implemented a similar policy in 2018, replacing the existing tax and excise regulations that had been in place since 2012. This new regulation imposes a tax of 0.03 francs (approximately IDR 490) per liter for SSBs containing added sugar of less than 1 gram per 100 ml, and gradually increases the tax to 0.24 francs (approximately IDR 3,900) per liter for drinks with added sugar content of 15 grams per 100 ml.

How effective is the imposition of taxes or excise on sweetened beverages in reducing consumption? A study published in 2022 shows that this method is quite effective in reducing purchases of sweetened beverages.

The imposition of taxes or excise duties increases the selling price, which will then decrease sales volumes. For producers, a decrease in sales volume may not necessarily result in a decrease in revenue because it will depend on how much the influence of tax and excise incentives and disincentives will have on the production costs, which will vary greatly depending on the conditions of each producer.

It appears that this rule seems effective enough in reducing the consumption of MBDK, although it may not necessarily be effective in compelling the industry to reduce the amount of sugar in their beverage products.

So far, only in England, Portugal, and South Africa have shown a decrease in sugar content in MBDK products.

Further research is still needed to determine whether the MBDK tax can provide incentives for producers to reduce the sugar content of their products. There is a preliminary suspicion that this incentive formulation could affect dietary patterns and health (for example, by reducing excessive sugar consumption), but it is not strong enough to change consumer behavior.

Reducing aggregate MBDK consumption will improve the quality of public health. Hungary, through its public health product tax (PHPT) policy, succeeded in reducing MBDK consumption by 26-32 percent, Mexico fell by 17 percent, especially in the lower economic consumer segment. In England, this policy resulted in a reduction in people's sugar levels by 11 percent in the 2016-2017 period.

Likewise, Australia can reduce the average sugar consumption of its citizens to 124 grams/day for men and 67 grams/day for women (Kompas, 19/5/2023).

Therefore, what needs to be considered is the amount of excise tax for MBDK. The higher its sweetener content, the greater the excise tax will be. In 2016, when the Ministry of Finance first proposed a plan for implementing a tax on MBDK, its amount was designed within the range of Rp 1,000 to Rp 5,000 per liter.

 

Djoko Santoso
Professor of Medicine, Airlangga University
Chair of the East Java Province MUI Health Agency



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