Mexico Tries Taxes to Combat Obesity; The House passed the proposed measure to charge a 5% tax on packaged food that contains 275 calories or more per 100 grams

Mexico Tries Taxes to Combat Obesity

AMY GUTHRIE

Updated Oct. 18, 2013 1:24 a.m. ET

MEXICO CITY—Congress’s lower house of Congress passed late Thursday a special tax on junk food that is seen as potentially the broadest of its kind, part of an ambitious Mexican government effort to contain runaway rates of obesity and diabetes. The House passed the proposed measure to charge a 5% tax on packaged food that contains 275 calories or more per 100 grams, on grounds that such high-calorie items typically contain large amounts of salt and sugar and few essential nutrients. The tax, which was proposed just this week, is sure to stir controversy among big Mexican and foreign food companies that operate here. It comes on top of another planned levy on sugary soft drinks of 1 peso (8 U.S. cents) per liter that was passed by the same committee, an effort that New York Mayor Michael Bloomberg supported.The taxes—both aimed at curbing consumption—have broad political support and were expected to later be approved by the Senate as part of a sweeping tax overhaul. The snack food levy is part of a bigger tax proposal from President Enrique Peña Nieto which aims to raise the government’s non-oil tax collections.

The taxes would put Mexico, a country notorious for its love of sweets, fried foods and pastries, on the cutting edge of government efforts to cut obesity rates.

“This appears to be the most aggressive strategy anywhere in the world in recent years to improve diets via tax disincentives,” said Michael Jacobson, executive director of the Center for Science in the Public Interest in Washington.

Harold Goldstein, executive director of the California Center for Public Health Advocacy, called Mexico a role model, saying that the measures could protect the health of consumers while also shielding the economy from productivity losses and runaway public health costs.

Seven of 10 adults in Mexico, and a third of children, are either overweight or obese. Mexicans have now surpassed Americans for the title of the fattest country in the OECD, according to the organization.

All that fat has contributed to an alarming rise in chronic illnesses like adult-onset Type 2 diabetes, which afflicts an estimated 15% of Mexicans over the age of 20, the highest rate for any country with more than 100 million inhabitants. Illnesses related to excess weight cost the Mexican public health system more than $3 billion a year, according to the legislation.

On virtually every street corner in Mexico, makeshift stands sell the types of packaged items that will be taxed for the first time: potato chips, cookies, ice cream, fried corn chips, chocolates, candy, puddings and local sweets.

“We’re a country of malnourished fatsos,” José Antonio Álvarez Lima, a former state governor turned newspaper columnist told Mexican political news website Animal Politico. He pegged part of the blame for Mexico’s high consumption of soda and snacks on incessant TV advertisements and poor education.

Mexico is Latin America’s biggest consumer per-capita of sweet and savory snacks, and the world’s top consumer of pastries, according to Euromonitor International, a consultancy.

Those habits have helped turn Mexico City-based Grupo Bimbo, the owner of U.S. brand Sara Lee, into a global leader in packaged foods. The country is also an enormous source of revenue for processed snack-making multinationals like PepsiCo Inc., owner of the popular Mexican potato chip maker Sabritas. Neither company responded to requests for comment.

The tax has its detractors.

Mexican industrial chamber Concamin estimates that processed food companies targeted by the new tax employ thousands of Mexicans and account for 4.1% of GDP. “We can’t allow last-minute taxes,” said Concamin president Francisco Funtanet, suggesting that companies might cut back on personnel and investment to absorb the tax hit.

Raul Picard, a top official at Concamin and owner of a chocolate company, argued that vice taxes could lead to a proliferation in contraband goods of questionable origin, possibly posing a threat to public health.

“There’s no such thing as junk food, just junk diets,” said Felipe Gómez, head of a regional food makers’ group in Jalisco state. Even so-called junk food has carbohydrates and calories that the body needs, Mr. Gómez argued.

Academics say the move could hurt the poor because they spend a greater percentage of their income on cheap, packaged foods, but added that doing nothing was worse.

“Nobody can deny that we have a big problem with fat and obesity,” said Felipe Vadillo, a medical doctor and researcher at Mexico’s national university, UNAM. Mr. Vadillo co-authored a book on public policy options for tackling obesity that highlights how Mexico’s poor are hardest hit by the country’s plethora of cheap options of high-calorie, low-nutrition foods.

Some ordinary Mexicans said a tax was unlikely to change their eating habits much.

Héctor Ortega, a 45-year-old operator of a street stand in downtown Mexico City, predicted that consumers may pull back briefly when prices rise, but then return to their old habits.

“Just like the cigarettes, people will go back to their old habits,” said Mr. Ortega. He said junk food was obviously unhealthy, but it was often the only thing that poorly paid office workers and students can afford. “This is a restaurant zone and the food here is expensive. For some people, these products are the only food available.”

Fernando González, 24, an office worker who frequents Mr. Ortega’s stand, is a big fan of sodas and gum, in particular. When the new prices kick in, he said, he won’t give up on his favorites, but will probably buy less chips and candy.

“It’s a craving, it’s an addiction, it’s something people enjoy,” he said of Mexicans and their treats.

While striking down plans to tax school fees, rents, home sales and mortgage interest, legislators upheld a proposed 1 peso ($8 U.S. cents) tax per liter of sugary beverage. They also supported a 10% capital gains tax and raised the maximum income tax rate to 35% for people earning over three million pesos ($235,000) a year. The current top rate is 30%.

They also agreed to raise the sales tax in border regions to 16% from 11%, bringing it in line with the rest of the country, while closing a number of corporate tax loopholes and eliminating many tax deductions.