Sugar tax or the taxation of sweetened soft drinks is a tax in Germany that has been much discussed in the recent past. There has been a sugar tax in Germany before. And for a very long time. That we hardly remember it is because we had hardly noticed it – it was only a few pennies. That is why nobody noticed it when it was abolished for harmonisation reasons when Germany entered the European internal market. Today, however, the argument for reintroducing a sugar tax is aimed primarily at steering. Sugar-containing drinks in particular contribute to a decrease in the general health of the German population. In other countries worldwide, there are already comparable taxes.

1st Sugar Tax – Introduction

If we were to associate a flavor with the term tax, then most of us would probably spontaneously come to bitterness. This time, however, we want to consider the sugar tax. As a tax consultancy, we ask ourselves, is there anything bitter than taxes on sweets?

The sugar tax is a globally widespread tax. Also in Germany, the sugar tax is not unknown. Although it is deeply rooted in the history of German tax law, it is now only the subject of discussion when it comes to a potential reintroduction. At present, German tax law does not provide for a sugar tax or a related tax. Why are they still being discussed? And how useful would it be? An analysis from the point of view of tax consultants.

2nd Origins of the Sugar Tax

When we write an article about sugar tax, it is best to start with the history of the tax object, sugar. Sugar is omnipresent in animated nature in various forms and is always of vital importance. Without sugar, for example, the biochemical structure of our genes would be unthinkable. But it was also indispensable as an energy source in the earliest life forms of our planet.

But only we humans have managed to make a business out of sugar – and out of a lot of sugar. Of course, this was initially limited only to the collection of honey or sweet fruits, which were certainly already early as objects of exchange very much sought after. This is due to the fact that the human organism, as in many animals, values the energy content of sugar so much, because it can build up energy storage for times of lack. Later, other natural sources of sugar were added, first sugar cane and in the 19th century, on a large scale, sugar beet.

As long as sugar cane alone was available as a supplier of sugar, it had to be imported from the Caribbean in particular. The arduous and, because of the high risk of injury, also dangerous work on the sugarcane plantations was an important reason for the flourishing transatlantic slave trade. Nevertheless, the quantities extracted and exported to Europe were initially only sufficient to meet the needs of the upper class. Sugar was a luxury at the time. No wonder it was also called “white gold”.

In the 19th century, the further improved sugar beet through targeted breeding began to replace sugar cane as a raw material for sugar production. It was of immense advantage that the sugar beet could be grown quite easily in Europe. The quantities of sugar obtained also exceeded those of sugar cane. In any case, with the increase in volume and the resulting fall in prices, the demand for the sweet substance also increased.

3rd sugar tax in Germany

But where profits lie dormant, the call for taxes quickly sounds. Therefore, it should not surprise anyone that the German lands gradually introduced sugar taxes at that time. The sugar tax first introduced in Prussia in 1841 was initially a pure raw material tax. The production and importation of the raw material were thus taxed. This has made sugar producers and importers taxable. But after a few years, the nature of the sugar tax changed. Because now it was a pure excise duty. Now the end customers as consumers paid sugar tax in Germany. Nevertheless, the sugar producers remained tax liable.

This type of taxation was maintained until the abolition of the sugar tax in 1993. In the meantime, in 1949, the tax was initially set at DM 30.50 per 100 kg of sugar. A decade later, however, it was reduced to only DM 10 per 100 kg of sugar. Different tax rates applied to different qualities (sugar types and purity levels). In 1983, a maximum of only DM 6 per 100 kg of sugar was raised. This was the level of the sugar tax at the end of 1992.

The turn of 1992/1993 brought the end of the sugar tax. At that time, Germany became part of the European Single Market. In order to avoid distortions of competition, Germany dropped its previous sugar tax.

In fact, that was quite right for her. Unlike in the earliest past, when pennies still had purchasing power, the administrative burden had increased considerably compared to the revenue from the collection of the sugar tax. Thus, the statistical report for the fiscal year 1991/92 shows only an amount of DM 182.1 million in sugar tax (Statistical Federal Office, Finance and Tax series 14 series 9.6.5). Sugar tax Operating year 1991/92 Table 1.7). This represented only 0.2% of the total excise duties that went into the state treasury during the same period, or just DM 2.24 per inhabitant.

4. sugar tax abroad

Let us now take a step back and include the taxation of sugar abroad in our considerations. This is important for assessing how useful the currently politically proposed reintroduction of a sugar tax could be.

Both in Europe and beyond, the sugar tax has now found a firm basis in tax regimes. It was introduced there to reduce excessive sugar consumption and the resulting health consequences for the population. Here, unlike in the past, the steering effect is in the foreground. Probably the most famous example, that in the discussion about a new sugar tax in Germany falls the most frequently, is probably the one in Great Britain. However, Belgium, Finland, France, Ireland, Croatia, Latvia, Poland, Portugal, Spain and Hungary also opted for sugar tax. By the way, the pioneer was Norway, which introduced a sugar tax early on and has been adjusting annually since then. Surprisingly, many South Sea states followed suit: French Polynesia, the Northern Marianas and Samoa. The reason for this was that in these countries a particularly high proportion of the population suffered from obesity.

In the meantime, many more countries have moved to impose sugar taxes. These include Chile, India, Mexico, Nigeria, Saudi Arabia, the UAE and many other states, in total more than 50. However, this also includes countries that only partially know a sugar tax. In Canada or the USA, for example, there is no national sugar tax, but taxes introduced in individual regions on their own.

In most cases it is a targeted taxation of sugary or generally soft drinks. Exceptions and individual regulations are very different. But they all have one purpose, namely to counteract the trend towards unhealthy nutrition.

Does a new sugar tax make sense in Germany?

5.1. Doubts about the effectiveness of the sugar tax

This brings us to the central question of our considerations. First of all, we must note that the situation appears confused, to say the least. Although there are some indications and also evidence that speak for a new sugar tax. In fact, various studies have shown a link between the introduction of a sugar tax, usually in the form of a tax on soft drinks, energy drinks and the like, and a decrease in their consumption. The higher the sugar tax, the greater the decline in consumption. On the other hand, however, an obvious link to improving the general health of the population often seems to be missing. Therefore, the argument put forward by representatives of the sugar industry in particular in Germany in defence of their interests is quite plausible, namely that a sugar tax alone cannot have a sufficiently large effect.

5.2 Concerted measures better than individual measures

But what prevents us as a society from consistently combating the fundamental problem of unhealthy diets? If the sugar tax alone is too little, then we should also decide on accompanying measures, such as a salt tax, a fat tax, the ban on advertising unhealthy snacks and drinks, at least where it is aimed at children and young people, the reduction of sugar and other substances as admixtures to food and what else is on the list of concerns in the nutritional sciences.

5.3. What maintaining the status quo has brought

Because one thing is also certain that the use of sugar in the food industry is even so advanced that sugar is used in large quantities even where it would hardly be suspected in general, for example in the production of bread or sausage as well as finished meals, for example pizza. And the volumes increase more and more, because on the one hand there is a competition for the favor of the customers, which wins the supplier who offers the delicious, because sweeter, product. On the other hand, because sugar is an industrially producible and therefore cheap filler that helps to reduce production costs. Sugar binds water, which on the one hand has a preserving effect, but on the other hand also leads to a cheap increase in weight or volume of the product. With a little more water in the product, less can be sold for at least the same amount of money. And if you're skilled, you even sell it as an improved recipe.

5.4. maximise the impact of sugar tax

So yes, sugar tax can make sense. However, their introduction should only be one measure in a whole catalogue of measures. It should also be high enough to achieve the objective assigned to it. In any case, one thing is certain: the voluntary commitment by the food industry to abandon sugar, on which policy has so far relied, has proven to be insufficient.