Dr. Artidiatun Adji, an economist from the UGM Faculty of Economics and Business (FEB UGM), mentioned that the sweetened beverage tax (MBDK) is worthy of immediate implementation in Indonesia.
“Until now, the government’s tax revenue averages 95 percent from tobacco tax revenue. Therefore, tax extension is necessary, and MBDK is one of the suitable commodities to be taxed,” she explained recently at FEB UGM.
The Department of Economics lecturer stated that with the implementation of the MBDK tax, the government is expected to no longer depend solely on tobacco tax revenue.
Furthermore, this policy design aligns with the purpose of tax implementation, especially to generate state revenue and reduce consumption that potentially impacts health (tax as a sin tax).
According to her, implementing MBDK is also appropriate to reduce excessive sugar consumption or sweetened beverages. Consequently, this tax implementation can reduce the prevalence of diabetes in the country.
The Ministry of Health’s website quoted data from the International Diabetes Federation (IDF), reporting that as of 2021, approximately 10.6 percent of Indonesia’s 179.72 million adult population aged 20-79 suffers from diabetes. MBDK aims to reduce the prevalence of diabetes in Indonesia.
Furthermore, she explained that according to the Asia-Pacific Tax Forum, there are several criteria for goods subject to taxation. These generally include luxury goods consumed to display one’s status or economic class rather than for basic needs. Hence, these goods are designed and produced to gain attention.
The next characteristic is goods that will have negative impacts if consumed, both for individuals and society. Examples of such goods are cigarettes and alcoholic beverages. Taxation on these products is referred to as a sin tax.
The third characteristic is products that cause addiction, meaning their consumption leads to repeated intense desires and dependency. Examples of these products are cigarettes and alcoholic beverages.
The last one is products that are not generally targeted at everyone (mass consumption), but their consumption is limited. These products usually have low elasticity.
“Based on the Asia Pacific Tax Forum and OECD classification, MBDK can also be categorized as a commodity that needs its consumption reduced,” she explained.
Furthermore, Dr. Adji stated that taxes should not only be seen as a sin tax—a fiscal instrument to control the externalities of consumption on health—but also as a comprehensive fiscal instrument.
One example is reducing the impacts of excessive consumption on environmental damage, such as plastic or oil consumption. Another example is implementing user charges for the consumption of government-provided goods and services, such as using roads by imposing fuel or motor vehicle taxes.
Additionally, it can improve income distribution by allocating tobacco tax revenue for government health insurance (BPJS) funding.
“More importantly, as a fiscal instrument, taxes can become an essential source of state revenue,” she added.
Dr. Adji mentioned that MBDK tax revenue would increase government tax revenue. Consequently, the government’s dependence on tobacco tax revenue will decrease.
“It’s crucial to understand the elasticity of MBDK demand. Tax implementation will reduce MBDK demand, but the magnitude and significance need to be studied,” she elaborated.
She explained that if MBDK demand is elastic, the percentage increase in price due to tax implementation will be smaller than the percentage decrease in MBDK demand.
On the other hand, if MBDK demand is inelastic, the percentage increase in price due to tax implementation will be larger than the percentage decrease in MBDK demand. The loss of welfare will be more significant if MBDK demand is elastic.
Dr. Adji outlined that Indonesia’s tax policy is based on four pillars: optimizing state revenue, reducing harmful goods consumption, combating illegal products, and protecting small businesses and job opportunities.
“Therefore, the impact of applying MBDK tax on products produced by MSMEs also needs attention. MBDK segmentation needs to be mapped for tax rate application on MBDK,” she concluded.
Author: FEB UGM
Editor: Ika