The Estonian Food Industry Association had prestigious law firm Sorainen analyze the bill as drafted by the Ministry of Finance. As daily Eesti Päevaleht wrote on Tuesday, they found that it went against the Constitution as well as EU law.

Sorainen’s verdict is devastating, as the bill also didn’t pay heed to legislative rules and technical requirements. The bill went against the principle of free enterprise, equal treatment, and proprietary rights, and thus violated the most basic legal principles, the law firm found.

The assessment gives the Food Industry Association a basis to contest the bill. According to representative of Estonia’s soft drink producers, Nele Normak, companies were now considering taking the government to court in the matter.

The Budget Council has suggested that the upcoming legal changes connected with the government’s tax and budget measures could lead to a number of court cases.

Sugar tax effectively state subsidy to competitors of soft drink producers

Sorainen’s lawyers stated that the planned sugar tax would amount to an illegal subsidy to all those who offered products that competed with the soft drinks to be taxed. Taking into account the aims of tax policy on the whole, imposing a tax and then exempting certain companies from it that were in direct competition with the businesses to be taxed was not justifiable.

If behind the new tax was the idea of improving general health across society, then all products should be taxed to lower people’s sugar consumption, the lawyers wrote in their analysis.

Another problem was the fact that a lot of the soft drinks sold in Estonia and hence the drinks that would be taxed were actually produced abroad, while the majority of businesses to be excluded from the measure were here in Estonia. This meant that with the new law, the state would give preference to local producers, which again was a violation of EU market rules.

Another problematic aspect was that retailers producing sweetened drinks for immediate consumption would be exempt as well, and such a special treatment of certain products according to the place where they are produced also couldn’t be justified.

As Minister of Finance Sven Sester (IRL) said, the bill and the concept of the new tax are based on years of work of the Ministry of Social Affairs as well as studies by the National Institute for Health Development and the World Health Organization (WHO), all of which deemed reducing the amount of sugar in soft drinks a viable way of reducing the share of overweight people in society.

“All parties were included in preparing the bill, and several meetings have taken place since November last year, when after the coalition agreement the decision was made to introduce a tax on sweetened drinks,” Sester pointed out, adding that this included the Chamber of Commerce and Industry, the Estonian Food Industry Association, and also representatives of the producers of soft drinks.