The effective contribution of excise taxation on non-alcoholic beverages to government revenues and social objectives: A review of the literature

Abstract

The effectiveness of a discriminatory tax, such as excise, on various food and beverage products deemed 'luxuries' or even 'harmful to health' has been debated regularly in recent years. The concept of 'effective' needs to be discussed in the context of what the tax is trying to achieve in terms of government policy but, in the context of nonalcoholic beverages, it can be expected that objectives of a discriminatory tax on these products would be to raise revenue or externalise perceived harm from consumption, or both. Using these expected objectives, this paper reviews the literature available and believes that excise-type taxes on non-alcoholic beverages have little or no effect in terms of revenue raising, and indeed often result in a negative economic benefit. In terms of health benefits, the literature shows that discriminatory taxes on soft drinks will reduce consumption of any targeted category but these policies seemingly miss the issue of consumers responding to the tax by substituting those types of beverages with other forms of calories.