New IEPS tax does not taste so sweet
By Antonio De Jesús
Neither consumers, manufacturers nor distributors seem to understand how the new tax called Special Tax on Products and Services (IEPS), which adds an eight percent charge to some products, is to be applied. Some people think that it applies to sugar, which could cause a rise in the cost of baked goods, others say that it applies to junk food, and others believe it only applies to sweetened beverages. What is certain and evident is that since the first minute of 2014, the tax reform took effect. It not only imposed a 16 percent value-added tax on pet food, gum and foreign transportation, but it also imposed an eight percent IEPS tax on products such as high-calorie drinks, candies made with milk, peanut and hazelnut butters, and candies made with fruits and vegetables, along with many other products. In the meantime, the minimum salary in the state only increased by two pesos. The taxes are not paid by big companies or distributors, but by the consumers.
The Law of Production Products and Services states in its Article 2, Part G that sugar-sweetened beverages are concentrates of fruits as well as powders, syrups, essences or extracts of flavors that once dissolved allow the manufacture of flavored beverages. Part G also includes syrups or juice concentrated for preparing flavored beverages to sell in opened bottles, using automatic, electronic or mechanical devices. The law explains that the amount to pay will be one peso per liter. To assess the IEPS for
powders, syrups, essences or fruit extracts, the tax is calculated based on the number of liters that can be obtained after mixing the product with a liquid, according to the specifications from the manufacturer.
Eduardo Castañeda, who heads one of the major distribution companies of staple items in San Miguel, said that the eight-percent tax has been added to more than 700 products since January. On the subject of sweetened beverages, Castañeda commented that powders such as Zuko have increased in price, but others, such as Tang, changed their sweetening formula to avoid having to add the IEPS tax. The distributor also commented that Jumex brand juices do not carry the new tax because the company has an agreement whereby it does not have to pay the tax. An article from La Jornada states that the Sistema de Administración Tributaria (System of Tax Administration) lost a lawsuit in favor of Jumex for 1.2 billion pesos, as well as a suit against Jugos del Valle, which received an award of 1.8 billion pesos.
Señora María Eugenia Fuentes, who has a convenience store on calle Juárez, said that FEMSA, the company that supplies Coca-Cola, increased the cost of their products of less than one liter by one peso, but according to the IEPS laws, the one-peso increase should be applied per liter, and for those containers holding less than one liter the tax would be calculated according to the content. In the Oxxo located on the corner of Pepe Llanos and Mesones, an employee commented that Coke and Pepsi increased their prices from three to five pesos on average. In other stores, such as the pharmacy at Insurgentes and Relox, the cost of a can of Coke rose from five to seven pesos.
The reason given for imposing the IEPS tax on these products is to reinforce the health programs of the Secretariat of Health to combat obesity and diabetes in the country. Nevertheless, in a previous interview with Atención the federal legislator Ricardo Villarreal expressed his concerns that the collected money could end up in other places, rather than going toward the effort to prevent diseases, because there is no commission to watch over the resources.
IEPS for snacks and exempted foods
The law considers snack foods to be those products manufactured with flour, seeds, tubers, cereals, fruits and grains that contain salt and are fried, baked or toasted. This category also includes all seeds and fruits with or without skin prepared with any other kind of food. The law states that seeds are exempt from the IEPS tax if they are preserved in their natural state, even if they have been washed, pealed, cleaned or hulled.
That law is a complex one, says Castañeda, because there is another article that exempts products made from wheat—which is a grain—from the IEPS tax, items such as tortillas, pastas, bread without sugar and flour. According to Castañeda, frituras, foods made with flour that are fried, cannot be taxed, but when they have been cooked in oil, then they are taxed. The law is not clear and it is confusing, said the distributor.
Products made with corn are also exempt from the tax, including tortillas, flour, nixtamal (corn boiled with lime), dough, and food made with this grain. Food made with cereals is also exempted, but the law states that it must not contain sugar. As an example, the brand Zucaritas (in the US, Frosted Flakes) would be subject to the IEPS tax, but not Corn Flakes, which do not contain added sugar. If a cereal is not sweetened but includes flavorings or processed seeds, then the tax law applies.
Candies and cocoa products
All candies are subject to the IEPS tax. According to the law, candies include caramels, candies made of peanut powder, jelly and
prepared gelatin, marshmallows and nougats, “among others.” Castañeda said that there are some conflicts between the SAT (Servicio de Administración Tributaria, also called “Hacienda”) and the company that manufactures the gums Bubaloo and Trident; the company argues that its products should should carry the IEPS tax instead of IVA (Impuesto al Valor Agregado, value-added tax) because what they are selling is the liquid center, not the gum.
Flans and puddings were also taxed, as well as all those products manufactured with cocoa. One of the most popular chocolates sold by the commercial distributor Dicocasa is Abuelita chocolate, which is a staple in the kitchen, said Castañeda, but it has been taxed, too. The IEPS has an impact on the economy, for sure, said Castañeda, both on the consumers who pay the IEPS and on manufacturers, who in some cases have not increased their prices and are paying the eight percent tax. Examples of those are the manufacturers of Snickers and Milky Way candy bars.
All the products made of fruits and vegetables are taxed with the IEPS, such as marmalades and peanut and hazelnut butters, including candies made with milk.
Allan Rodríguez, an accountant, said that this new “special tax” would harm above all others the working class. The minimum salary in Guanajuato just increased 2.30 pesos this year, to 63.77 pesos a day. The minimum wage, said Rodríguez, is a strategy of the government so companies can be sustainable and profitable in the country with a cheap source of labor. The accountant said that the minimum salary in the state must be 170 pesos to keep up with inflation. The increase in the minimum wage, remarked Rodríguez, is only for those who work for minimum wage; salaries of those who make more than the minimum are decided by their employers.
The hike in the cost of sweetened beverages may not affect drink prices in many bars and restaurants. José Luna, owner of Mama Mia, commented that they would need to do an analysis to determine the real cost of the mixers. If the increased cost is only a few cents, they will not increase their prices by charging the IEPS tax, although they would increase drink costs to stay in line with inflation because the restaurant has more than 100 employees. The manager of Pueblo Viejo and Azotea, Rigel Jasso, said that they are not considering an increase in their prices. Café Santa Ana in La Biblioteca also will not increase its drink prices.