Nestle: New ‘sin tax’ will trigger higher inflation

by **Cals** Tue 08 Jul 2014, 08:46

Business & Markets 2014

Written by Charlotte Chong of theedgemalaysia.com

Monday, 07 July 2014 10:19

KUALA LUMPUR: The country’s inflation rate will likely rise if the proposed “sin tax” on sugary drinks is implemented, said Nestle (Malaysia) Bhd.

Its executive director of group corporate affairs Zainun Nur Abd Rauf told The Edge Financial Daily that the additional tax, if implemented, would come on the heels of the government’s plan to launch the goods and services tax next April.

She said this would result in more upward pressure on the country’s inflation rate.

Her thoughts were based on the fact that when the sugar subsidy was removed in 2013, there was a subsequent rise in inflation.

It was announced at the fifth National Diabetes Conference 2014 last month that the government was looking at imposing a “sin tax” on sugary drinks to address the rising prevalence of diabetes in the country.

According to Zainun, so far there is no clear evidence in countries that have implemented such food taxes that they will be effective in combating obesity and related non-communicable diseases.

“Food taxes may create unintended shifts in consumption from one product to another in a way that does not necessarily benefit consumers’ health. In addition, food taxes are regressive in nature and therefore disproportionately impact low-income families,” she said.

Zainun warned that a selective tax on sugary products could lead to smuggling. So, at the very least, any food tax should be equally applied across similar food categories and formats based on criteria that are relevant from a public health perspective, she said.

Nestle, Zainun said, would not be adversely affected by the “sin tax”, because “we do not have a product portfolio in sugary drinks” and that “sugar accounts for less than 3% of our total operating costs”.

And the company “remains open to the possibility that well-constructed fiscal measures might be effective as part of a wider public policy programme” to lessen Malaysians’ high sugar intake.

In a note on June 30, TA Securities said it maintained a cautious outlook on Nestle because although the company generally promotes nutritional food and drinks, its coffee, tea, and milk products are not sugar free.

The research house maintained a “sell” rating on Nestle with a target price of RM65.68.

It noted that the new tax rate could be at 10%, if the government were to emulate other countries that had imposed such a tax.

If enforced, Nestle said the price of sugary soft drinks could see a continuous hike, similar to that for tobacco and alcohol products.

Meanwhile, Dutch Lady Milk Industries Bhd (Dutch Lady Malaysia) managing director Rahul Colaco said the impact of the proposed tax on sugary beverages would largely depend on the rate of tax imposed and its scope.

Colaco said the company supports the government’s efforts in addressing the health of Malaysians and encourages “(a) continued dialogue between the government and industry on this issue”.

He said Dutch Lady’s products presently contain less sugar or are plain variants.

“The sales of our range of reduced-sugar products have been positive. In fact, they have risen since their launch. Furthermore, we have received [much] positive response from consumers,” Colaco said.

Presently, the government is spending 4.6% of gross domestic product on healthcare and is concerned whether this would be sustainable in the long term.

This article first appeared in The Edge Financial Daily, on July 7, 2014.