Indonesia is considering a tax on beverages with added sugar, which can compound woes for beverage firms including The Coca-Cola Co (NYSE:KO). These firms are already struggling with a slowdown problem in Southeast Asia’s largest economy. Health concerns may result curbs on the rising demand for sweet beverages in Indonesia.
Finance officials in one of the most populous country have urged the health ministry to analyze whether sugary beverages, including soda and most popular bottled beverage after tea, water poses a health threat. If it happens, The Coca-Cola beverages may also fall in the excise list of high-bracket tax products comprising tobacco. Here it should be noted that tobacco and alcohol are leading tax contributors in Indonesia.
The country has taxed some sweetened drinks earlier under a luxury-goods tax. However, it modified tax laws in 2004 as the taxes dampened performance of drink makers. The sales of sweetened drinks have recorded double-digit yearly growth since taxes were removed. This indicates any change in tax guidelines can have an adverse impact on The Coca-Cola Co (NYSE:KO)’s financial performance. Indonesia’s bottled drinks market remains relatively small accounting for less than the other regions in the Asia Pacific.
Advocates of the tax mention its potential health benefits, stating higher prices will reduce consumption of sugary beverages that contribute to diabetes and obesity. Sugar intake in the nation of 250 million population remains below regional and global levels but still rising at a faster speed. The average consumption of sugar per day in Indonesia was 14.4 grams in 2014 compared to the Asia-Pacific average consumption of 16.5 and the worldwide average of 35.9.
Annual growth in sugar consumption in Indonesia stands at 5.7% more than the regional growth average of 5.2% and the global growth average of 2.2%. A spokesman for Indonesia ministry’s customs and excise unit statedthat any potential change is not expected to be implemented until next year.