Looming GCC sugar tax could be expanded to include food

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Companies will not shoulder the increased cost of a selective tax that could increase the price of soft drinks by half once it is introduced in six Gulf countries.

The tax, which was approved by the Gulf Co-operation Council last year and ratified by the Saudi Cabinet in February, will be levied at 50% for soft drinks and 100% for energy drinks and tobacco. 

Speaking in Dammam, Solaiman Al-Dohayan, deputy director of Saudi Arabia’s tax authority, said he understood that many companies had already decided to pass this increase on to consumers, as the levy’s backers had intended.

He also said there is a willingness among GCC ministers to expand the selective tax to cover all sweetened products, though this has not yet been formally discussed.

He added that ministers of the GCC member countries had not yet set a date for introducing the tax. 

Once it goes ahead, it appears likely that soft drink companies will be given a grace period to shift existing stocks before implementing the tax.

To take advantage of this, though, Al-Dohayan said retailers must provide authorities with details of the quantity of stocks of energy drinks and sodas remaining in their stores.

Gulf authorities believe the sugar tax will reduce consumption by 5-15%. The move was prompted by rising obesity rates in the Gulf, where nearly a third of adults are now obese and diabetes and other weight-related diseases are becoming serious public health issues.

According to Euromonitor nutrition data, in 2015 Saudi Arabians received 35% of their sugar from soft drinks. This, the market analyst said, is a “remarkably high amount”, and almost double the global average. The figure is even greater than other carb-loving countries like the US (29%) or Mexico (32%).

Of the GCC’s US$8.4bn soft drinks market, Saudi accounts for 68% of sales. Its US$5.8bn market is not only the biggest in the Middle East, but also Africa as a whole, even though it ranks just 14th in population, Euromonitor found.

The region’s growing obesity problem offers good news for niche players, if not for mainstream brands, said Matthew Barry, a Euromonitor Beverage analyst.

This could potentially make these countries some of the most promising markets for health-positioned drinks in the world, but it will also pose a threat to sugar-heavy categories that have found the Gulf states to be a rare bright spot at a time of widespread anti-sugar feeling,” Barry said.

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