Starting from April 1, 2024, Uzbekistan will implement an excise tax on carbonated drinks that contain sugar or sweeteners, as well as energy drinks. This change in legislation was signed into law by the President of Uzbekistan on December 28, following the adoption of the primary directions of tax and budget policy.
Tax details
According to the new law:
- Carbonated drinks that contain sugar or other sweetening or flavouring substances and are packaged for consumers (excluding energy and tonic drinks) will be taxed at a rate of UZS 500 per litre.
- Energy and tonic drinks will be taxed at a rate of UZS 2000 per litre.
This provision was also included in the draft law. The introduction of the excise tax is planned in light of the potential increase in health conditions, including diabetes, due to excessive consumption. More than 50 countries, including France, Hungary, and Great Britain, have implemented a similar tax. The revenue generated from this tax will be allocated to the Medical Development Fund.
Background
On December 20, a meeting was held by the Ministry of Economy and Finance to discuss the proposed law. The meeting was attended by Deputy Minister Ahadbek Khaydarov, representatives from the Ministry of Health led by Deputy Minister Elmira Basitkhanova, and soda producers, Spot reports.
Health Ministry representatives pointed out that energy drinks were initially designed for athletes. However, these drinks are now being marketed to young people and children under 25 years of age, who may not be able to make informed decisions. This marketing strategy can lead to dependence among young people, posing a threat to their health.
An official from the Ministry of Health stated, “The most important thing to prevent the harmful impact of energy drinks consumption, the World Health Organization recommends [sugar-containing soft drinks] to be taxed with excise tax to reduce excessive consumption, reduce availability.”
When asked by Alfia Musina, the head of the Association of Producers of Soft Drinks and Juices, about any research conducted on the negative effects of energy drinks and soda in Uzbekistan, a department employee responded that the Ministry of Health had limited time to study the problems in the country. They emphasized that there is already international experience collected by the World Health Organization, which does not need further proof.
Nodira Alikhanova, Director of the Institute of Health and Strategic Development, mentioned that the introduction of an excise tax is just one method to balance the nutrition of the population, particularly among children and adolescents.
“Conducting research - especially epidemiological, when the study includes a large number of respondents - is a very expensive study, not every country can afford it, on the one hand. On the other hand, it is not quite clear why we should duplicate these studies. There are already so many of them in the world that I think it is already spelt out as truth,” she said.
Business representatives expressed their opposition to the discriminatory nature of the tax, which only targets sodas in the fight against diabetes and obesity, while other sugar-containing products are not considered. They emphasized the need for a comprehensive and systematic approach to improving the population’s health, as the introduction of an excise tax is just one of the 20 measures recommended by the WHO.
Private sector’s offer declined
Despite the high cost of research, the private sector was willing to fund and provide the results of the Euromonitor study on the consumption of packaged products in Uzbekistan. However, Elmira Basitkhanova declined the offer, arguing that the experts might present what the manufacturers desire.
Impact on business investments
Saiyed Adil Jafri, the financial director of the local Coca-Cola, revealed that the company has plans to invest in advance for the next 3-4 years. Currently, they are investing in the construction of plants in Samarkand and Namangan. However, the imposition of additional taxes impacts the cost of production, leading to price increases, reduced sales, and overall negative effects on the business.
“In this situation […] maybe we should not invest in Samarkand and Namangan? We are investing almost $200mn in the next three years, and have already invested $150mn over the past three years. In this situation, we, as entrepreneurs, are forced to reconsider our plans,” he stated.
Jafri urged not to discriminate against one industry, but to extend the measure to all sources of sugar consumption.
Health Ministry’s standpoint
Basitkhanova defended the agency’s position with the WHO recommendation, the introduction of excise duty in 108 countries globally, and the aggressive advertising of carbonated drinks on TV. Following this, all representatives of the Ministry of Health, except for one specialist, exited the meeting, citing a meeting with the minister.
PepsiCo’s perspective
Muzaffar Salizhanov, Innovation Director of PepsiCo Bottler in Uzbekistan, stated that the investments of PepsiCo and Coca-Cola until 2026 amount to at least $150mn, and in a five-year perspective, it is $250mn.
“Now we have suspended [investments] in the construction of two plants, so we must consider the economic side of [the introduction of an excise tax on sodas],” he said. “How much damage will the budget be? We have to calculate it all. Most importantly, if we reduce production, there will be a problem of unemployment. We think about improving people’s health, but we leave them out of work,” Salizhanov concluded.
Ministry of Economy and Finance’s response
Akhadbek Khaydarov, Deputy Head of the Ministry of Economy and Finance, acknowledged that a differentiated amount of excise tax depending on the sugar content is needed to encourage producers to produce drinks with lower sugar content. He expressed his readiness to consider the introduction of a differential approach to the excise tax on sodas and discuss the proposal with the business sector. However, he insisted that the tax should be applied to all gradations, regardless of the sugar content in the products.
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