MSG Team's other articles

11762 Valuing Preference Shares Using Dividend Discount Model

The dividend discount model is also used to measure the value of preference equity in addition to forecasting the value of ordinary equity. There are certain assumptions and clarifications that need to be made regarding the use of dividend discount model for valuing preference equity. The purpose of this article is to provide this information […]

10190 Living in a Cashless Society

Our monetary system has undergone a sea of change in the past century. If our great grandfathers were to see our lives today, they would not be able to relate to any form of payment. Fiat currency, plastic money, negotiable instruments are all creations of the financial innovation that has taken the world by storm […]

12439 Benefits of Buy Now Pay Later (BNPL)

Buy Now Pay Later (BNPL) is the latest buzzword in the retail industry. The media has been full of debates about the benefits and drawbacks of Buy Now Pay Later (BNPL) from the consumers point of view. However, when it comes to the point of view of the merchant or the seller, there has not […]

9662 How Reserve Requirements Work ?

Reserve requirements are one of the most important features of modern central banking. We hear about reserve requirements almost every day in the media. When central banks like the Fed change these requirements, it is said to have a huge impact on the markets. Liquidity worth billions of dollars is said to be either released […]

9392 Why Is Free Cash Flow Approach Better Than Dividend Discount Models?

The dividend discount models assume that the investors have no control over the payout policy of the firm whatsoever. This is true for the case of the minority shareholder. Hence, it is said that as far as the minority shareholder is concerned, dividend discount models may be the best tools for valuing a firm. This […]

Search with tags

  • No tags available.

Sugary beverages manufactured by companies such as Coca-Cola and Pepsi are colloquially called “soda” in the United States.

Americans consume soda in large quantities. This consumption can be attributed to the fact that soda is easily and cheaply available. The low cost and easy availability are considered to be one of the main reasons why Americans have high rates of obesity and lifestyle diseases such as hypertension, diabetes and even cancer.

The link between high consumption of soda and the increase in health care costs is direct and has been reported by several investigative agencies. It is for this reason that some provinces in America have started levying a soda tax.

In simple words, a soda tax is only levied on beverages which have more than a certain specified content of sugar. California was the first state to levy a soda tax in America. However, Philadelphia has one of the steepest rates of this tax.

On the global front, many countries like Denmark, Barbados and the United Kingdom have successfully applied soda taxes. America is amongst the new entrant in the club.

Soda Tax

Since soda companies such as Coca-Cola and Pepsi are based in the United States, there is a lot of lobbying which is being done in order to repeal these taxes. This has led to a debate breaking out in the United States upon the advantages and disadvantages of a soda tax. In this article, we will have a closer look at these advantages and disadvantages.

Advantages of Soda Tax

The advantages of the soda tax have been listed below.

  • Reduced Health Care Costs: It is a proven fact that if people consume fewer sugary drinks, they will have less risk of developing any lifestyle disease. Taxes raise the prices of sugary products. Hence, they incentivize people to eat healthier foods.

    In many developed countries, the government has to bear the health care costs. Hence, more unhealthy people mean that the government has to face more expenses.

    By levying soda tax, the government ensures that there will be fewer expenses in the future. Hence, it makes financial sense to levy such a tax.

  • Increased Allocation to Nutrition Costs: In many developed countries there is a direct correlation between the levy of soda taxes and the increase in spending on nutrition costs. This means that the government collects money from people who buy soda and gives it to those who buy healthy food. This is in line with the government’s objective of making healthy food the more economically viable alternative.

  • Reformulation: In many countries, the sales of soda companies saw a severe decline after the soda taxes were introduced. Since the business was impacted, these companies were forced to reformulate the products and remove excess sugar. The newly created products were not really healthy. However, they were causing considerably less damage to the public health.

    Hence, the governments in these nations and provinces have been able to successfully alter corporate behavior with economic incentives. Companies have become more socially responsible thanks to the soda tax.

Disadvantages of Soda Tax

The soda companies have been lobbying hard to get the soda taxes repealed. They have been stating many disadvantages of these taxes. Some of the most prominent ones are listed below.

  • Forcibly Influencing Consumption Patterns: The soda companies are of the opinion that consumption of any kind of food is a personal choice. This is one area of life, where there should not be any government interference.

    These companies have been alleging that by forcing customers to choose certain kinds of products over others, the government is infringing on their constitutional rights.

  • Damaging Local Business: Consumers who stay in the border areas of these provinces simply tend to go to another state or country to buy the soda that they need. Hence, the argument presented by the soda companies is that the tax is not actually doing any good.

    The consumption is still continuing, and the damage to health is still being done. However, by implementing the soda tax, the state is just reducing its own revenues and that of the local businesses. They believe that there are no winners as a result of this tax. However, there are significant losses that local businesses have to bear.

  • No Parity in Sin Taxes: The additional levy of soda tax does not mean that sin taxes are increased further. Hence, in many states, the price of soda becomes somewhat close to the price of alcohol. The end result is that many people who were going to buy soda end up buying alcohol instead! Hence, there is a damage done to public health.

    The soda companies, therefore, state that alcohol prices should also be raised further by taxation. If that is not possible, then the soda taxes should also be repealed.

  • Impacts Poor People: Sodas tend to be consumed more by people in the lower income group. Hence, when these taxes are levied, the lower income group is the most adversely affected.

    Hence the allegation that the soda tax is actually a regressive tax which takes from the poor and gives to the rich. However, the government has refuted this allegation saying that their objective behind levying these taxes is to ensure that the consumption of soda amongst lower income groups is drastically reduced.

To sum it up, many governments all over the world have woken up to the ill effects of consuming sugary drinks. The soda companies are likely to see more action being taken to prevent excessive consumption of sugar.

Article Written by

MSG Team

An insightful writer passionate about sharing expertise, trends, and tips, dedicated to inspiring and informing readers through engaging and thoughtful content.

Leave a reply

Your email address will not be published. Required fields are marked *

Related Articles

What is Cost of Equity? – Meaning, Concept and Formula

MSG Team

Cross Border Credit Reporting

MSG Team

What is Corporate Finance? – Meaning and Important Concepts

MSG Team