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01 February 2016

Bulgaria: Junk Food - To Tax or not to Tax?

In early 2015 the Bulgarian Ministry of Health (“Ministry”) announced its intention to follow the example of Denmark and to propose a tax on “unhealthy foods”. The aim is to limit the consumption of foods which increase the risk of chronic diseases such as obesity, heart disease, diabetes type two etc. The opinion of the National Centre for Public Health (“Opinion”) justified the Ministry’s idea that the high costs associated with widespread chronic diseases legitimise the imposition of fiscal measures. The intended taxes will affect four groups of foods which contribute to the increased risk of chronic diseases.

As expected, the Ministry’s idea has been received with criticism from the Food Industry. According to the latter, the adoption of the law will lead to an increase in the price of Bulgarian goods and will reduce their competitiveness, but will not improve consumers’ health.

The tax will affect four groups of foods and it is expected to bring in approx BGN 150 million (approx EUR 75 million) in revenue.

Foodstuffs subject to taxation

Considering the mandatory information in food labelling set out in Regulation 11692011 on the provision of food information to consumers, the Ministry intents to tax:

A. Foods containing partially hydrogenated vegetable oil.

B. Foods which are main sources of salt:

(i) chips, extruded snacks and pellets, pretzels, crackers, popcorn, salted nuts and seeds with salt content higher than 1g per 100g;

(ii) instant soups and broths containing more than 0.7g of salt per 100g;

(iii) mayonnaise, mayonnaise sauces, salad dressings with a salt content higher than 1.3g per 100g.

According to the Opinion, the aim of the authorities is to cover only the salty foods that are not “basic” foodstuffs, through these fiscal measures. Thus, cheese, meat products and canned vegetables shall not be subject to taxation.

C. Energy drinks and other caffeinated beverages and foods:

(i) non-alcoholic beverages, containing added caffeine in amounts higher than 24mg per 100ml containing taurine higher than 100mg/100ml;

(ii) energy shots containing added caffeine in amounts higher than 60mg or higher than 300mg taurine in the portion of a single intake;

(iii) alcoholic beverages with added caffeine excluding those in which the caffeine is added as a flavourant, alcoholic beverages with added taurine;

(iv) foods (other than drinks) to which caffeine is added (methyl xanthine) from all sources taurine excluding those in which the caffeine is added as a flavourant.

D. Soft drinks and foods with a high sugar content:

(i) water, including mineral and carbonated, containing added sugar or other sweeteners, soft drinks (carbonated, powdered), fruit juices, fruit nectars and fruit drinks;

(ii) Sugar products, baked goods, pastries, cakes, biscuits and ice cream with a total content of sugar more than 25g per 100g;

(iii) chocolate and other products containing cocoa with a total content of sugar exceeding 40 g per 100 g, except those with a cocoa content of 40% and more;

(iv) fruit jams and jellies with the exception of those meeting the requirements for “extra quality”, according to local legislation.

Pursuant to the Opinion, “sports drinks” shall fall outside the scope of the law, since they have the special purpose to meet the specific needs of the body during intense muscular activity.

“Something is rotten in the state of Denmark”

Coincidentally, when the Ministry started the discussion about tax on junk foods, the European Commission (“EC”) announced its investigation regarding the Danish tax on fat. The Commission stated that the reason for the investigation is a suspicion that the tax might represent an inadmissible state aid. When opening the file, the EC said it wanted to determine if food producers who were not forced to calculate the additional tax on fat in the price of production, received an advantage which infringed competition and placed them in a more favourable position. A reason for the investigation is the Commission’s awareness that certain products were excluded from the scope of the Danish tax on fat. In a statement the Commission announced that it supports the aspirations of member-states to develop healthy eating habits, even if this involves the introduction of tax obligations. However, these measures must be in accordance with Community legislation.

The development of healthy eating habits must be in accordance with Community legislation.

author: Elena Todorova