Several Estonian business associations have sent their stance to the Ministry of Social Affairs regarding the draft law on the taxation of sugary drinks, stating that nothing in the draft indicates that the goal of improving public health would be achieved.

"The planned tax, in its current form, has only a fiscal objective, which is executed at the expense of the beverage and food industry as well as economically less fortunate individuals, ultimately reaching neither of the possible goals: neither improving public health indicators nor increasing tax revenue," the associations stated in their appeal.

"As a result, the amount of free sugars and calories consumed will not decrease significantly. Despite WHO recommendations, the experience of no country applying a sugary drink tax confirms the positive health effects attributed to the tax. There are examples of the opposite effect and an aggravating problem, which the draft's impact analysis has selectively omitted," noted the entrepreneurs.

The business associations also pointed out that the tax would have no positive effect on the budget, as the economic impact analysis is based on the drafters' incorrect assessment, not on calculations based on Estonian market data and peculiarities that would consider experiences from recent years, including the introduction of significant excise tax increases.

"The government's expected tax revenue of €25 million is not a realistic calculation with the assumed price elasticity of -0.9 – without considering other negative impacts on the overall budget revenue, resulting from a decrease in taxpayers' turnover due to reduced sales, the potential resurgence of cross-border trade, and, as seen in the Danish example, the effects of smuggling," the appeal stated.

The sugary drink tax is not a proportional measure in the opinion of the associations – it infringes upon the fundamental rights to equality, property and freedom of enterprise. The explanatory memorandum of the draft law has serious deficiencies in justifying the suitability, necessity and moderation of the measure, despite knowledge of alternative and potentially more effective measures.

"As a result of the tax, one of the strongest and most competitive industrial sectors will be damaged, in a situation where the economy is in a prolonged downturn and geopolitical uncertainty adds to the instability," the business associations noted.

"We are of the opinion that the drafters of the bill have not assessed the impacts of the planned law with sufficient thoroughness, even though there has been ample time to do so. There is a complete lack of assessment of the economic impact on taxpayers, and the calculation of expected tax revenue is based on incomplete calculations that do not take into account the decrease in turnovers caused by the tax and thereby lower tax collection, nor the risk of the emergence of cross-border trade and a real black market. In summary, everyone loses: the state does not receive the expected tax revenue, entrepreneurs lose competitiveness, and consumers their health, as to satisfy their sweet tooth, they reach for cheaper and often less healthy foreign alternatives, not water," the appeal stated.

"The Estonian beverage and food industry is tired of the constant attacks from officials and regulators and wishes, for once in a long time, to feel that members of the government, especially the minister of economic affairs and the minister of finance, who could also be concerned with the economy and the free income – welfare of Estonian people, would stand up to these attacks," the entrepreneurs remarked.

The draft law

According to the draft law, the state will begin taxing sweet drinks with a sugar content of at least five grams per hundred milliliters or those to which artificial sweeteners have been added. Alcoholic beverages will not be taxed, but, for example, non-alcoholic beer will be subject to the tax.

The tax rate depends on the amount of sugar contained and whether sweeteners are used. Some products, such as milk and dairy products and natural juices, are exempt from the tax.

The tax is progressive to encourage producers to reduce the amount of sugar and the use of sweeteners in beverages and to guide consumers to prefer drinks with lower sugar content and without sweeteners due to the price increase of high-sugar content drinks.

For example, for a half-liter soda with five to eight grams of sugar (the lowest tax rate) per 100 milliliters, the tax is 7.5 cents, meaning the tax rate for a liter of drink is 15 cents.

The highest tax rate is applied to drinks with at least eight grams of sugar per 100 milliliters. In this case, the tax for a half-liter drink is 22.5 cents.

For sweeteners, drinks will be taxed from the first gram. The tax rate is 15 cents per 100 milliliters.

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