Mexico hopes tax on soda will refill lost oil revenue

MEXICO CITY -- Mexico is trying to make up for a projected shortfall in oil revenue by raising taxes on other quick-fix liquids: colas and carbonated drinks.
A proposal by the nation's new President Felipe Calderon would impose a 5% levy on soft drinks -- and an additional 15% on cigarettes -- to raise $1 billion next year. With Mexico's oil production falling and its economy slowing, Calderon's administration is scrambling to find additional sources of revenue. Calderon said last week that he would seek to impose the new taxes as part of his 2007 budget.
The proposal has raised the ire of Mexico's $10-billion soft drink industry. The sector has taken out full-page ads in national newspapers blasting the proposal as a job killer and a potential blow to Mexican consumers, who trail only Americans in their consumption of carbonated drinks.
"Taxes on beer, cigarettes and soft drinks are the easiest to collect," said Alfredo Paredes, chief executive of Ajegroup, the maker of a popular soda called Big Cola. "That is why they are targeting us."
Although the tax would be levied on bottlers, companies said they would have to pass the cost on to the public, which already pays a 15% value-added tax on soda. They said the new tax could cost Mexico 36,500 jobs, including sugar-cane harvesters and mom-and-pop vendors.
Manufacturers said the hike would be particularly hard on low-income Mexicans, who spend more of their incomes on soft drinks than on beans. The average Mexican drinks an eye-popping 152 liters of soda a year, according to the industry statistics.
Sugary cola is a dietary staple for Mexico's poor. Cash-strapped laborers guzzle it on the job. Two-liter beverage bottles are more common than lunch boxes on construction sites.
"Poor people drink it for energy to keep from falling down in the street," said Paredes, whose Big Cola has captured nearly one-tenth of the Mexican market by selling cheaper than market leaders Coke and Pepsi.
At a convenience store in the capital's Polanco neighborhood, a 3.3-liter bottle of Big Cola was selling for $1.11 on Monday compared with $1.57 for a 2-liter bottle of Coke.
Paredes and other business leaders want Calderon to boost tax receipts by getting more cheats to pay up, rather than tapping industries that are already contributing.