Forty Sen Tax To Curb The Sugar Rush

The relationship between us and sugar is a complicated one. We all know that refreshing feeling of having a gulp of iced soda, the sweet delight of eating a chocolate cake or that spoonful of vanilla ice cream melting in your mouth - it can be irresistible.

Sugar is not entirely bad for our us; but having high amounts of sugar-sweetened beverages and food can lead to detrimental health problems.

Already, Malaysians is known as Asia's fattest country, with approximately half of the population overweight or obese. It also has the second highest child obesity rate among children aged 5 to 19 in the ASEAN region.

So, when the Malaysian government announced its intention to impose a sugar tax, it was seen as a step in the right direction to address the alarming problem of obesity among its citizens.

Starting July 1, the government will impose an excise tax of 40 cents per litre on sugar or sugar-based sweetener beverages with more than five grams of sugar, as well 40 cents per litre on fruit and vegetable juice with sugar of more than 12 grams per 100 millilitres.

During a celebration of World Health Day in April, Health Minister Datuk Seri Dr Dzulkefly Ahmad said: ” This tax will be limited to manufacturers, it will not affect drinks prepared and served at eateries. It is better to educate the public not to take coloured and sweetened drinks served in restaurants."

But, how does this tax really work?

Managing Director of Nielsen Malaysia Luca De Nard examines how the implementation of sweetened beverage tax affect the three main players; manufacturer, consumer and retailer.

“The manufacturer will be affected the most because they are responsible for the execution of the tax. They could potentially decide to absorb the tax but that is very unlikely to happen. The tax will most probably be passed on to consumers.

“This is an opportunity for them (manufacturers) to innovate and introduce new products, like, the less or zero sugar range. In fact, we are already seeing manufacturers doing this for the last few months- there is a rise in this low sugar segment.

“They might also relook into the sizes of drink packs and introduce alternatives that will not be impacted by this excise tax.

“The international manufacturer’s are used to this. Perhaps the local manufacturers need to adapt and innovate their product.

Impact of Sugar Tax on Malaysian Manufacturers and Consumers

Nielsen Malaysia recently has conducted a study; ‘Nielsen Malaysia Sugar Tax Report (2019)’- a survey that involves 1,200 people from the ages of 18 to 64, across peninsular and East Malaysia.

“What we found is, Malaysians are actually very loyal when they like a specific brand.

“However, 11 percent of them told us they will completely stop taking these sugary drinks. The rest of them claim they might reduce their consumption or switch to other cheaper brands."

“It’s an interesting claim before the implementation of the tax. I’m curious to see if they do what they say. This is something we will follow up in the next few months. If 11 percent say they will stop drinking, that’s actually a big number,” says De Nard.

Sugar Tax Around the world - Implementation and Impact

Malaysia is not the first country to introduce sweetened beverages tax to reduce sugar consumption among its people. Over 20 countries have implemented the tax and have shown a varying outcomes.

“Three countries who have implemented with very distinctive results," says De Nard.

“Firstly, Saudi Arabia. This country taxes 100 percent for energy drinks and 50 percent on carbonated drinks. It is a huge amount and the impact on the market was big as well- people stopped buying certain products. Manufacturers in Saudi Arabia were able to adapt, they innovated and brought in new products. It worked out quite nicely, actually. The results were significant.

“Then, we studied Mexico. This country is very interesting because the Mexicans love sodas. They are actually at the top (globally) in terms of soda consumption. The Mexican government tried very hard to control this habit. They not only implement the tax but also forbid sugary drinks advertisements on television at certain time (of the day).

“So, when the (sugar tax) was first introduced, the consumption of sugary drinks dropped. However, just after two years, consumption was back to its previous level.

“In the Philippines, after the tax implementation, we observed that the people actually went for water (as replacement). The sales of water went up significantly.

“Now, my curiosity is if Malaysians will actually follow the Mexicans or the Filipinos? We will only know in a few months time,” says De Nard.

How Will Malaysians Respond to the New Sugar Tax

According to the same Nielsen study, carbonated soft drinks are the most consumed beverage in Malaysia, followed by packaged water and ready-to-drink fruit juices.

“Consumer demographics also matter. Forty cents increase might not be a lot for middle-income earners in the urban areas but it could be a significant increase for lower income groups in rural areas.

“We have seen the price of sugar increase and decrease in the past. However, based on Nielsen Retail Audit Data, there is not much effect on volume consumption.

De Nard applauds Malaysia’s effort to reduce the consumption of sweetened beverages. However he says, it might not be enough to curb the health problems arising from drinking too much sugary beverages such as diabetes and heart diseases.

“The tax is a good starting point but it is not enough. I believe there must be a more holistic approach to support and communicate with the people about the importance of a healthier lifestyle.

“If this healthy lifestyle is on the agenda of the government, this implementation is just one piece of the puzzle.

"Think about, the smoking ban has been implemented earlier this year. Now, with this sweetened beverages taxes - we hope to see more things in this direction,” he says.