It’s Confirmed: A Soda Tax Like Philadelphia’s Would Cut Sales By 50%

Since January 1st of this year, the city of Philadelphia has implemented a major soda surtax equivalent to 1.5 cent per ounce of liquid.

The surtax applies not only to soft drinks but also to “diet” type drinks.

As soon as it was introduced, consumers were shocked by the new prices. Indeed, the new tax easily adds 51% to the initial sale price.

If applied to us and taking into account the exchange rate, here is the impact it would have on a 2 L of Pepsi:

• Current cost (regular price): $ 2.69 + $ 0.40 (GST + QST) = $ 3.09
• Cost with a surcharge like in Philadelphia: $ 2.69 + (68 ounces X $ 0.019 / ounce) = $ 1.29 for the surtax, total before taxes: $ 3.98, + $ 0.60 (GST + QST) = $ 4.58
• So, as we see, the new price of $ 4.58 would be 51% more expensive than the previous $ 3.09.

Drop of sales and Tax Avoidance

And while we are still spared, in Quebec, by such a lunatic measure (but for how long?), one can easily anticipate the effects that it would have here in view of what is happening elsewhere.

The first impact would be a sharp drop in sales.

According to the Tax Foundation, soda sales in Philadelphia fell by about 50 percent following the new tax implementation. The price difference prompted many citizens of Philadelphia to use social media to coordinate the purchase of soft drinks outside the city so as to avoid the surcharge. Therefore convenience stores, grocery stores, supermarkets and others would lose half of their sales on this category which generates good profit margins.

Then there would be job losses. Such a drop of sales can’t go without consequences. Soda bottlers would be targeted first, followed by a few distributors probably and possibly some retailers as well.

Add to that the many legal proceedings that the soft drink industry would initiate to reverse the controversial legislation.

Finally, as seen in Philadelphia, tax revenues are likely to disapoint as sales will fall so much that they won’t produced the expected tax income.

All of this for some highly wishful health benefits that are not supported by a shred of evidence. Not to mention the deeply regressive aspect of a tax that hit the poor the hardest.

And as for tobacco, the soda enthusiasts would continue to avoid taxes by “contraband soda” supplied through undercover networks of buyers in the neighboring provinces.

All this to say that a soda tax is such a bad idea and such a violation of people’s freedom of choice that we must hope it will never come to existence here.

Let people drink what they want!