In 2022, Colombia passed a reform that establishes taxes on ultra-processed foods and sugary beverages, which came into effect on November 1, 2023. These taxes seek to discourage the consumption of these products and improve public health. Firms affected by the tax reform should review production and distribution costs in order to support margin strategy. Investing in brand image or repositioning the messaging behind key products (for instance, marketing a product as premium or high quality) can help sustain or bolster consumer demand in segments that are likely to be less sensitive to price increases. Where possible, firms should also review their product mix to bolster the prevalence of product options unaffected by the tax increase or to highlight products with lower sugar or sodium content. Finally, firms might consider investing in product innovation, specifically innovative formulations, as they adapt to the new regulatory environment.
According to the government, this tax will generate a revenue of up to COP 3 trillion by 2025. This measure consists of applying a variable rate depending on the level of sugar and sodium in the products. The tax will gradually increase from the end of 2023 to 2025. For drinks that contain 6 g or more of sugar per 100 ml, the tax will be COP 18 per 100 ml in 2023, COP 28 in 2024 and COP 38 in 2025. For drinks that contain 10 g or more of sugar, the tax will be COP 35 per 100 ml for the rest of 2023, COP 55 in 2024 and COP 65 in 2025. The measure will also apply to ultra-processed foods, according to their content of sodium, sugar, or saturated fats. Thus, foods that exceed 300 milligrams of sodium per 100 grams of product, 10% of sugar, or 10% of saturated fats of the total energy value, will pay an additional 10% on the value of the product in 2023, 15% in 2024, and 20% in 2025.
Although the tax is designed to gradually come into effect so that firms and consumers have time to adjust, Colombia continues to face double-digit inflation, which, coupled with the risk of global food inflation driving additional food price pressures, could impact household spending on food products. Furthermore, 21 of the articles affected by the measure are part of the basic basket and the consumption of Colombian families. According to the Ministry of Finance, it is estimated that the tax will have an impact of +0.21 percentage points on the total inflation of the year 2023, of +0.11 percentage points on that of the year 2024 and of +0.12 percentage points on that of the year 2025. Despite the surge in prices, numerous products might maintain consistent consumption patterns. Notwithstanding the price hike, premium segments will probably still buy these products, while mass market segments will partially reduce the quantities consumed to adjust to the change in prices. So far, although there has been rejection of the new norm, it is not expected that this will escalate to major social unrest.
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