Newfoundland and Labrador introduces legislation to create sugar sweetened beverage tax

On October 19, 2021, Newfoundland and Labrador’s Finance Minister tabled Bill 29, which will create the first per litre sugar sweetened beverage (SSB) tax in any Canadian province.  This bill is a priority for the Premier thus, with a majority government, the bill will almost certainly pass during this Fall session of the Legislature.  Following passage, the bill will come into effect on September 1, 2022.  The bill will tax SSB’s at $0.20 per litre.  The tax will be primarily collected at the wholesale level and passed through to retailers and ultimately customers as part of the overall price.  This would be similar to the current model for provincial tobacco and gasoline taxes.  However, if a retailer purchases the SSB product directly from the manufacturer then the retailer would be responsible for collecting and remitting the tax. 

RCC was able to communicate over multiple months, the costs and administrative challenges that would be created through this tax, regardless of whether the tax was collected at the wholesale or retail level.  Most RCC members did state though that if the tax were collected at the wholesale level, retailers could avoid costly changes to in-store point of sale (POS) systems for stores in Newfoundland and Labrador. 

Background:

Bill 29 can be viewed here.

The list of beverage products that will be subject to this tax as well as the list of exempted beverage products can be found in the Backgrounder to the government’s press release.  More detail will be provided through the regulations which will be approved and posted soon.

Concentrates / drink syrups will be subject to this tax.  For these products, the tax rate will mimic the actual end yield (volume) as opposed to its volume as a syrup (see Bill 29’s Part IX.2, Section 106.12(1).  The tax will be applied based on the manufacturer’s recommended mixing ratios for finished product.  Government officials noted that in their research, almost all concentrates / drink syrup products had recommended mixing ratios listed on the product.  Where the manufacturer does not provide the recommended mixing ratios for the finished product, government has prescribed the amounts in Part IX.2, Section 106.12(1)(ii) of the bill.

Determinations of the beverage products that will be subjected to the SSB tax were based on the guidance offered by Health Canada regarding sugar content on food labels / added sugar that will be defined by Health Canada as of April 1, 2022.  This includes a Health Canada interpretation of what it considers to be ‘sugar’.  See more information.

There will not be a sugar deminimus.  If the product label says that the product contains sugar, it will be subject to the tax (notwithstanding the exempted products).  Government refused RCC’s request for consideration that the tax be based on calories as opposed to simply sugar.  Such an approach would have recognized that there are many beverages that are sweetened with other products but may have a small amount of sugar.

Since May 2021, RCC has engaged in numerous meetings / conversations with the Minister and senior officials at the Department of Finance in Newfoundland and Labrador regarding the government’s proposed sugar sweetened beverage tax (SSB). 

The consultation process with the Department of Finance was disappointing in that staff could not provide specific details regarding the parameters of this proposed tax until the legislation was tabled.  Nevertheless, RCC was able to work with its members to ensure that the Minister and senior officials were aware of the negative impact that this tax would have on retailers who sell beverage products.  Once it became clear that the government would not change its mind regarding the tax, RCC focused its ultimately successful efforts on,

• ensuring there was a list of exempted beverage products and
• moving the implementation date for this new tax (originally scheduled for April 1, 2022; now scheduled for September 1, 2022).

Most RCC members stated that if the government was determined to implement the tax, their preference was for the tax to be collected at the wholesale level.  Nevertheless, there were also several retailers who provided details to the Newfoundland and Labrador government of the complicated supply chains that result in many retail stores buying beverage products from wholesalers while simultaneously buying other beverage products directly from manufacturers.  Given these realities, RCC was able to impress upon government officials that the SSB tax will cause significant costs and ongoing administrative challenges even if the tax is collected at the wholesale level.

As the increased costs of this tax will likely be passed through to retailers and ultimately consumers, government officials hope that retailers will reflect the true cost of the SSB in consumer prices.  Government will not compel retail pricing however, as part of government’s public education process, it hopes that retailers do not absorb the increased costs involved with the SSB tax in order to maintain common prices (eg: regular soda vs diet soda).  RCC has already suggested that government should tread carefully with such a recommendation given the various rules surrounding pricing and competition.

Next Steps:

Given the fact that this tax will not be shown on a customer’s POS receipt, several RCC members are worried that customers will incorrectly accuse retailers of price gouging once the tax is in place.  RCC has asked the government to provide public education regarding the tax.  Several retailers have asked for government to create signage, which could be displayed in stores to communicate that certain SSBs are now subject to a tax of $0.20 per litre.