Tax bill with higher junk food levy passed in Mexico

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MEXICO CITY -- Mexico's Congress increased a proposed junk-food levy as it passed a tax bill championed by President Enrique Pena Nieto to reduce the nation's dependence on oil revenue and promote growth.

The lower House voted 299-160 with one abstention Friday to impose an 8 percent tax on high-calorie foods, such as PepsiCo's Cheetos, following the same decision by the Senate. The measure, which also raises income taxes and creates new duties on capital gains and sugary drinks, now awaits Mr. Pena Nieto's signature. The Senate version raised the tax on junk food from an initially proposed 5 percent.

Mr. Pena Nieto plans to lift growth, which slowed more than the government expected this year, by shifting taxes away from the state-controlled energy sector to spur both public and private investment in oil. The president overcame political opposition to pass the reform, which bodes well for his proposal to break a 75-year state monopoly on oil, according to Alonso Cervera, chief Mexico economist of Credit Suisse Group AG.

The National Soft Drink Producers Association, which includes Coca-Cola Femsa SAB and Arca Continental SAB, Latin America's biggest Coca-Cola bottlers, estimates that a 1-peso-per-liter soda tax would result in the loss of 20,000 jobs, from workers who cut sugar cane to those in factories.

Mexico is struggling to deal with an adult obesity prevalence of 32.8 percent, the highest among major countries after Egypt and compared with 31.8 percent in the United states, according to the United Nations Food and Agriculture Organization.

Mexico is the world's top consumer of soft drinks, at 163 liters (or 43 gallons) per capita a year -- 40 percent more than the United States -- according to the World Health Organization, helping to make diabetes Mexico's top killer.

"Diabetes, hypertension and obesity are a significant burden on the nation's health system, and it's going to grow in coming years," Armando Rios Piter, the Democratic Revolution Party's highest-ranking Senate Finance Committee member, said in a phone interview. "The aim is that these taxes will reduce consumption and spur consumers to replace some items."

Diabetes cost the lives of about 81,000 Mexicans in 2011, almost three times the number of homicides in a nation wracked by drug cartel violence. Obesity cost the Mexican health system $3.2 billion in 2008, equivalent to 13 percent of health spending, according to the National Academy of Medicine.


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