In Mexico, soft drink and tobacco companies pay less income tax than most taxpayers.

In Mexico, manufacturing companies pay an average effective rate of 4.07%,

while the majority of the working population pays rates between 7% and 11.5%.

Oct 2025 : Soft drink and tobacco companies pay, on average, an effective Income Tax (ISR) rate of 4.07%, when the rates faced by 29% of the working population are between 7% and 11.5%, according to estimates by economic experts, with figures from the Tax Administration Service (SAT).

But from the next year, the government is seeking to increase the Special Tax on Production and Services (IEPS) on unhealthy products, such as sugar-sweetened beverages (soft drinks and juices), those containing sweeteners, and tobacco. The proposal has already been approved by the Chamber of Deputies and is being discussed and voted on in the Senate this week. These increases will mean a surge in revenue collection for the public treasury next year.

The increase in quotas is intended to reduce the purchase of these products; however, civil society representatives emphasise that the “healthy tax” burdens still fall short of the recommendations of international organisations and that income tax payments by companies in the sector should also be increased.

The effective income tax rate refers to the amount paid on income tax after applying deductions and exemptions that help reduce the tax burden. SAT data indicates that the effective rate paid by companies in the wholesale trade of cigarettes, cigars, and tobacco was 3.33%, and 4.81% for those in the soft drinks or sports drinks with sugar and sweeteners.

“This means that of all their sales revenue, they are only paying 4% to the SAT, and this has different explanations. One of them is that, for example, companies can deduct concepts that, from our perspective, should not be allowed. For example, rights for holding water concessions can be deducted, as well as advertising expenses, etc. In order for this effective rate to increase, these concepts should be evaluated“, as commented by Iván Benumea, coordinator of the Tax Justice Program.

The payment of water tax is considered a production cost, and therefore, the law allows this cost to be taken into account when calculating companies’ profits. For unhealthy industries, deducting the payment of fees translates into a lower tax base, and for the State, this means lower income tax collection. Thanks to this mechanism, what industries pay to exploit a public good is partially recovered when calculating income tax, explains the study “Healthy Taxes. More Resources for Public Health”, conducted by the Center for Analysis and Research, Fundar.

The document also indicates that companies can consider other taxes, such as property tax, ownership tax, payroll tax, electricity usage fees, advertising, and even workers’ social security contributions, as necessary expenses for generating profits and legally deduct them. These types of deductions could also be limited to increase tax payments for unhealthy industries.

Benumea explained that deductions to reduce the income tax rate are a legal and fair measure, but there are also other highly questionable options, such as using invoicing companies, which simulate transactions to issue tax receipts that can be used to deduct phantom expenses.

Among the proposals in the 2026 Economic Package that will be submitted to the Senate this week are measures against counterfeit invoicing, such as preventive detention for issuers and the cancellation of digital stamps for those who purchase them.

Fundar, CIEP, and Poder del Consumidor report that to increase the tax burden on unethical entities, the federal government could limit their deductions for water exploitation, use, and utilization, other federal contributions, and advertising expenses; reduce the tax benefits currently granted to them by law; implement a surcharge on income tax so that the businesses themselves contribute to financing the social costs they generate; and make their financial and tax information transparent.

Maverick News wishes to apprise its readers that in a sharp contrast, to such prevailing tax system in Mexico, Government Of India has long implemented a robust tax regime in which, soft drink and tobacco companies pay higher taxes than most taxpayers, not less. These products, classified as “sin goods” due to health concerns, are subject to the highest Goods and Services Tax (GST) rates.

• Soft drinks: In September 2025, aerated, sweetened, and caffeinated beverages were moved into a new special “sin tax” bracket with a 40% GST rate. This replaced the previous structure of 28% GST plus a 12% Compensation Cess, maintaining the high tax burden but simplifying the tax structure.

• Tobacco products: Tobacco products, including cigarettes and pan masala, are also designated as sin goods. Their taxation is structured similarly to soft drinks, with a high base GST rate and additional duties like the National Calamity Contingent Duty (NCCD) and a Compensation Cess.

While the GST Council has approved a 40% rate for these products, the new rate was not implemented immediately in September 2025. It will take effect after the central government repays outstanding Compensation Cess loans to states. Until then, the existing 28% GST plus Cess regime continues.

Comparison with standard taxes:

The tax rates on sin goods like soft drinks and tobacco are significantly higher than the standard GST rates for the majority of goods and services in India. The current GST regime has standard tax slabs of 5% and 18% for most items, with a special high rate of 40% for luxury and demerit goods. This makes the tax burden on soft drink and tobacco companies and their consumers substantially greater than on those who pay the regular 5% or 18% GST.

Rationale for high taxation:

The Indian government imposes high taxes on these products for two main reasons:

• Discourage consumption: The elevated tax rates are a public health measure to discourage the consumption of products that are harmful or have negative health consequences, such as those with high sugar or tobacco content.

• Generate revenue: The higher taxes on these items are a source of significant revenue for the government. The revenue from the Compensation Cess, in particular, is used to compensate states for any revenue losses they might incur under the GST system.

Suvro Sanyal – Team Maverick