How Mexico's Excise Taxes Put a Squeeze on Junk Food and Drinks

Excise taxes play a significant role in shaping consumption patterns, particularly concerning tobacco, alcohol, and junk food. Francisco Javier Arias Vázquez, the head of the Tax Revenue Policy Unit of Mexico's Ministry of Finance and Public Credit (SHCP), highlighted the impact of these taxes during a session on strengthening tax collection in Mexico. This article delves into the purpose and effectiveness of excise taxes in Mexico, shedding light on their contribution to promoting healthier lifestyles and addressing public health concerns.

The Role of Excise Taxes in Mexico:

Excise taxes, specifically the Special Tax on Production and Services (IEPS), serve as tools to discourage the consumption of harmful products such as alcohol, tobacco, and junk food. They are aimed at curbing negative consumption patterns and reducing the associated externalities. These externalities refer to the effects of consumption and production decisions on the welfare of individuals not directly involved in these choices.

Addressing Public Health Concerns:

Mexico faces significant public health challenges, including high rates of obesity and diabetes. With the second-highest obesity prevalence among OECD countries, Mexico recognizes the need for effective measures to combat these issues. Arias Vázquez highlighted the correlation between obesity, diabetes, and excessive sugar intake in the country.

In response, Mexico has implemented innovative excise taxes on junk foods and soft drinks to encourage healthier diets with fewer risks of obesity, diabetes, and cardiovascular diseases. The excise tax on alcoholic beverages is based on their alcohol content.

Successes and Effects of Excise Taxes:

The effectiveness of excise taxes can be measured through various indicators. For example, Mexico's tax on soft drinks has proven successful in reducing their purchase, while the consumption of unsweetened bottled water has increased. A study referenced by Arias Vázquez indicated that the implementation of IEPS led to a 6.0 percent reduction in the consumption of taxed beverages and a 4.0 percent increase in the consumption of purified water.

Furthermore, excise taxes have had a positive impact on citizens' calorie consumption. The tax has reduced the disparity in caloric intake between overweight and healthy individuals by 7.1 percent. It has also decreased the gap in caloric consumption between individuals suffering from obesity and those who are overweight by 5.6 percent.

The Significance of Excise Taxes:

Excise taxes in Mexico not only internalize the social costs associated with consuming unhealthy goods but also serve as a substantial source of revenue. By discouraging the consumption of harmful products, these taxes contribute to improved public health outcomes and alleviate the burden on healthcare systems.

Conclusion:

Mexico has taken proactive measures to address public health concerns through the implementation of excise taxes on tobacco, alcohol, and junk food. These taxes have proven effective in promoting healthier consumption patterns, reducing the consumption of taxed beverages, and increasing the intake of purified water.

By tackling issues related to obesity, diabetes, and cardiovascular diseases, Mexico aims to improve the overall well-being of its population. Excise taxes not only discourage negative consumption patterns but also generate crucial revenue for the country. With these initiatives, Mexico continues to lead the way in utilizing taxation as a tool to promote public health and well-being.