Coca Cola Index: liter price places Argentina in the 3rd place in a world ranking and shows why a tax reform is needed

If a consumer could have the posibility to scan a barcode and analyze every single component of a product´s final price, they would be probably surprised to discover what happens with non-alcoholic beverages. Cola flavored beverages, for example, cost almost fifty pesos and half of that price comes from taxes. 

Several multinational enterprises and local producers of juicies and flavored waters are running this industry in Argentina, which directly employes 27.000 people. They have already started to get ready for a government´s outpost in this field, since the rumour of a posible raise taxes to non-alcoholic beverages. 

However, they did not expected the project to have this impact. According to the diffused draft this beverages, that used to have taxes between 4% and 8%, would raise taxes to 17%. As a counterpart, diet products would low tax to 0%. 

However, this decision was not well received by local producers, as they point out that this last category only represents 20% of the business in Argentina. 

But the decisión that reverts the raise tax in other industries –like wine and foaming wine- has changed businessmen expectations. 

"This opens the door to negotiation. We understand that this may be replicated in other branches of activity, such as ours, which has a significant spillover effect on regional economies ", explains to iProfesional Esteban Agost Carreño, spokesman of the Argentine Chamber of the Non-Alcoholic Beverage Industry. 

The institution points out that the elimination of taxes to wine and beer and the maintenance of the aliquot for sugar-free soft drinks, is a "discriminatory meassure" from the Government. 

Agost Carreño consideres that "there is a elastic relation between the Price level and the demand. As a consequence of enforcing this new tax, sales will low 10% and this will mean losing job positions". 

Podium to Argentina

Argentine Chamber of the Non-Alcoholic Beverage Industry lead a survey of how the non-alcoholic beverages industry is being affected by tax burden around the world. They reached the conclusión that Argentina is in the podium of nations that have the most elevated tax burden in the world. 

"Our country shows the most elevated tax pressure in the continent and we are in third position worldwide, only below Finland and Hungary", point out the expert when consulted by iProfesional. 

When comparing Argentina's tax pressure with bordering countries, it can be seen that Chile and Uruguay have a tax pressure four point below ours. 

According to the Argentine Institute of Tax Analysis, if the national taxes are dissagregated it can be seen that:

- 16,6% is value-added tax (IVA, for its initials in Spanish)

- 5,9% is income tax 

- The rest are internal taxes and an 11,5% belong to social seccurity scheme

In this context, enterprises authorities think that if the government carries on with this project, the country will move onto occupy the first position of the mentioned ranking. 

Higher taxes ...and prices

According to a survey carried out in more than a dozen markets located in Europe, Latin America and North America, the values in the domestic market of the most popular soft drink are at the top of the podium.

The data is compelling, because it is a product that is produced under the same quality standards globally and practically with the same raw materials anywhere in the world. So that a price ranking of these characteristics allows to know how expensive it is to produce and market one of the most "commoditized" goods in the world.

According to the survey, due to the high tax pressure, high labor and logistic costs and the extra influence of the exchange factor, the 1.5-liter container of the popular drink is priced at $ 50 in the main supermarkets of Buenos Aires, a figure that equals au $ s2,80 at the official exchange rate.

This same product costs US $ 2.50 in the case of Uruguay and US $ 2 in Chile, countries that are located in the second and third place, respectively.

Brazil, meanwhile, offers this same product at US $ 1.80, while at the lower end of the table is Colombia, with a price equivalent to US $ 1.15.

Key Summit

The directors of CADIBSA, as part of the Coordinator of the Food Products Industries (COPAL), will have a decisive meeting with the Government on Thursday of next week, in which the tax issue and its impact on regional economies will have a space central in the agenda.

The meeting, which will be chaired by the coordinator of the Chief of Staff, Gustavo Lopetegui, generates expectation.

Even more after the summit between governors and President Macri in Casa Rosada, in which it was revealed that the head of state undertook to reverse the controversial tax on wines and sparkling wines.

According to the draft that had been advanced days ago by Minister Dujovne, the aliquots were going to go to 10% and 17%, respectively.

However, after heavy pressure, they managed to deactivate the measure.

For companies in the non-alcoholic beverage category, this differential treatment that the wineries would be receiving sets an important precedent in the upcoming wrestling.

The companies seek to demonstrate the damage that this measure will cause at the consumption, investment and employment levels.

"In the sector there is concern, but we appeal to the Government to have the same consideration with the rest of the regional economies, as they did with beer and wines," says the spokesman of one of the companies affected by the measure. In what seems to be a successful defense strategy, the wine industry relied heavily on the argument that wine is a healthy food and should not be considered harmful to the organism. Meanwhile, the soft drink and flavored water industry seeks to show officials that taxes on sugary drinks "are ineffective in addressing public health challenges."

"Even, many of these drinks, if they are consumed in moderation, do not necessarily harm the health," they add from the chamber. Of course, this is an argument not entirely shared by the authorities, which seek to replicate some in the country experiences that were seen in markets such as Mexico, Colombia or Peru. Consequences With regard to the impact that the sector would have on raising aliquots between 9 and 13 points, the chamber states that imposing a tax on the levels that the Government intends will imply a 10% drop in sales, with a "domino effect" that It will go from the agricultural link to the commercial channel.

To put it in perspective, the main customer of the citrus sector is the non-alcoholic beverage industry, which annually purchases more than 50% of the production of these fruits for the production of by-products. Only If a consumer could have the posibility to scan a barcode and analyze every single component of a product´s final price, they would be probably surprised to discover what happens with non-alcoholic beverages. Cola flavored beverages, for example, cost almost fifty pesos and half of that price comes from taxes. 

Several multinational enterprises and local producers of juicies and flavored waters are operating in Argentina in this industry, which directly employes 27.000 people. They have already started to get ready for a government´s outpost in this field, since the rumour of a posible raise taxes to non-alcoholic beverages. 

However, they did not expected the project to have this impact. According to the diffused draft this beverages, that used to have taxes between 4% and 8%, would raise taxes to 17%. As a counterpart, diet products would low tax to 0%. 

However, this decision was not well received by the local producers, as they ponit out that this last category only represents 20% of the business in Argentina. 

But the decisión that reverts the raise tax in other industries –like wine and foaming wine- has changed businessmen expectations. 

"This opens the door to negotiation. We understand that this may be replicated in other branches of activity, such as ours, which has a significant spillover effect on regional economies ", explains to iProfesional Esteban Agost Carreño, spokesman of the Argentine Chamber of the Non-Alcoholic Beverage Industry. 

The institution points out that the elimination of taxes to wine and beer and the maintenance of the aliquot for sugar-free soft drinks, is a "discriminatory meassure" from the Government. 

Agos Carreño consideres that "there is a elastic relation between the Price level and the demand. As a consequence of enforcing this new tax, sales will low 10% and this will mean losing job positions". 

"Even, many of these drinks, if they are consumed in moderation, do not necessarily harm the health," they add from the chamber. Of course, this is an argument not entirely shared by the authorities, which seek to replicate some in the country experiences that were seen in markets such as Mexico, Colombia or Peru. Consequences With regard to the impact that the sector would have on raising aliquots between 9 and 13 points, the chamber states that imposing a tax on the levels that the Government intends will imply a 10% drop in sales, with a "domino effect" that It will go from the agricultural link to the commercial channel.

To put it in perspective, the main customer of the citrus sector is the non-alcoholic beverage industry, which annually purchases more than 50% of the production of these fruits for the production of by-products. Only Coca-Cola acquires 60% of the production of orange juice each year, 12% of lemon juice and 27% of grapefruit juice.

In addition, the company buys more than 100,000 tons per year between pears, apples, grapes and peaches. In this context, from CADIBSA still have no details on the treatment that beverages such as natural juices, which have the sugar content of the fruit will have."This product, which is healthy and has no aggregates, is in a limbo, and we do not know yet if the aliquot will be 17% or 0%," says Agost Carreño. The other argument they will bring to the table is linked to the impact on the labor market.

According to Agost Carreño, "the value chain of this industry is complex and ends up supporting, indirectly, some 270,000 jobs." According to industry estimates, an increase in the rate at the levels anticipated by Dujovne would put at risk about 7,000 direct jobs. Entrepreneurs also add that more than 8 out of 10 bottles of non-alcoholic beverages are sold in Argentina through neighborhood stores, stores, kiosks and pantries. For these channels, this category represents about 40% of their income.

"We reject this measure because it is a direct blow to the profitability of the kioskers, they are recessive taxes that punish the consumption and work of the working classes," they indicate from the entity. Even, the kiosqueros criticize the experiences of other countries of Américalatina, where "the installation of taxes of this type not only did not achieve improvements in their indexes of health, but that derived in a strong crisis for the small retailers".

With the increase in the aliquots, the State intends to raise $ 5,000 million, while -according to the companies of this branch of activity- resigns revenues of $ 6,300 million due to what moves in black, which represents 30% of the total business. "The Treasury has tools to control the chain and could be using it, moving forward with this measure would be beneficial for everyone and would report $ 1,300 million more than increasing taxes," says Agost Carreño.

The companies in the sector have a folder full of arguments against the tax. This Thursday will be a key date. "Unless the government surprised before with a last minute change," says a source from one of the companies, who looks askance at what happened with the wines.

According to Agost Carreño, "the value chain of this industry is complex and ends up supporting, indirectly, some 270,000 jobs." According to industry estimates, an increase in the rate at the levels anticipated by Dujovne would put at risk about 7,000 direct jobs. Entrepreneurs also add that more than 8 out of 10 bottles of non-alcoholic beverages are sold in Argentina through neighborhood stores, stores, kiosks and pantries. For these channels, this category represents about 40% of their income.

"We reject this measure because it is a direct blow to the profitability of the kioskers, they are recessive taxes that punish the consumption and work of the working classes," they indicate from the entity. Even, the kiosqueros criticize the experiences of other countries of Américalatina, where "the installation of taxes of this type not only did not achieve improvements in their indexes of health, but that derived in a strong crisis for the small retailers".

Attacking evasion From CADIBSA they indicate to iProfesional that other of the key arguments that they will expose to the Government is linked to the difference between the potential collection and the level of evasion that exists in the sector.

With the aliquots increase, the State intends to raise $ 5,000 million, while -according to the companies of this branch of activity- resigns revenues of $ 6,300 million due to what moves in black, which represents 30% of the total business. "The Treasury has tools to control the chain and could be using it, moving forward with this measure would be beneficial for everyone and would report $ 1,300 million more than increasing taxes," says Agost Carreño.

The companies in the sector have a folder full of arguments against the tax. This Thursday will be a key date. "Unless the government surprised before with a last minute change," says a source from one of the companies, who looks askance at what happened with the wines.