BBC News Online: Business

Mexico mulls soft drink tax

Mexico's tax regime is badly in need of reform

A member of Congress told the Reuters news agency that the plan - which would take advantage of Mexico's status as the world's number two consumer of soft drinks - was on the table.

The idea is to slap a 20% tax on soda, on top of the 15% value added tax which already applies to such beverages.

Financial difficulties

Mexico's government is desperate to reshape the tax system, not least because of the country's low tax take.

Mexico's difficulties were thrown into sharp relief earlier today with news that in the three months from July to September, the economy contracted by 1.6%.

The first quarterly shrinkage in six years is seen as the result of the knock-on effect of the US economic slowdown. About 85% of Mexico's exports go to the US.

A tax reform package which includes the extension of VAT to food and medicines has been stuck in Congress since April.

Since the ruling National Action Party (PAN) of President Vicente Fox has no majority in Congress, any new tax proposals need the backing of other parties to succeed.

Food for thought

But both the Institutional Revolutionary Party (PRI) - which ran Mexico for 70 years till Mr Fox's election in last year - and the leftwing Party of the Democratic Revolution are opposed.

"Soft drinks are food for the poorest people," said one PRI congressman.

And predictably the tax is loathed by the soft drinks industry.

Mexico drinks more Coca-Cola per head of the population than any other country on Earth, and the company which runs the nation's biggest Coca-Cola bottling plant has made its displeasure clear.

"In other countries people refresh themselves with a Coca-Cola," said Jose Antonio Fernandez, president and chief executive of Fomento Economico Mexicano (Femsa).

"But in Mexico they eat Coca-Cola."