Sugar tax shortfall

The new sugar sweetened drinks tax came into effect on May 1, two months into the fiscal year. The Government collected $3 billion less than it had budgeted from the local special consumption tax (SCT) during the April-June quarter, with the Ministry of Finance pointing, in part, to non-compliance following the introduction of the sugar-sweetened drinks tax. But the country’s fiscal watchdog, the Independent Fiscal Commission (IFC), says the explanation does not go far enough. The IFC said information provided by the Ministry of Finance and the Public Service (MoFPS) was inadequate to determine whether the explanation for the 35.5 per cent shortfall was reasonable. According to the IFC’s latest statement on fiscal performance that was tabled in Parliament last week, the Government collected $5.52 billion in local SCT during the first quarter of the 2026/27 financial year, well below the $8.57 billion that had been budgeted. The resulting $3.04-billion gap was the largest shortfall recorded under the local SCT heading among the production and consumption taxes for the quarter. The ministry attributed the underperformance to several factors, with the introduction of the new tax on non-alcoholic, sugar-sweetened beverages forming only part of its explanation. “The shortfall reflects lower-than-expected collections from new revenue measures in Q1 (quarter one), due in part to non-compliance by some firms in remitting SCT for May 2026 following the introduction of the sweetened drinks tax. Changes in production and consumption behaviour in anticipation of the scheduled tax increases announced under the FY [financial year] 2026/27 revenue measures also contributed to the shortfall. “Lower remittances from Petrojam Limited, together with weaker-than-expected performance in the automotive, petroleum distribution, and beverage/tobacco industries, further reduced SCT collections,” the ministry told the IFC. However, the IFC was not satisfied that the explanation provided enough information to properly assess the reasons for the shortfall. The new sweetened-drinks tax came into effect on May 1, two months into the fiscal year. The Government had initially proposed a charge of two cents per millilitre on non-alcoholic sweetened beverages, but subsequently changed the structure following consultations with industry. The revised measure applies SCT at 22 cents per gram of added sugar or sweetener. The Government had said the measure was intended not only to raise revenue but also to support public-health objectives. It was originally projected to generate $10.1 billion during the fiscal year. The implementation itself also encountered administrative challenges. Tax Administration Jamaica extended the deadline for beverage manufacturers to complete licensing under the new SCT regime to May 15, after the tax took effect. The local SCT shortfall formed part of a wider revenue gap during the quarter. Central Government revenue and grants came in $28.7 billion, or 9.8 per cent, below budget, while tax revenue was $18.8 billion, or 6.9 per cent below target. The IFC noted that nearly $9 billion of the overall $28.7-billion gap was related to timing differences, including tax revenue that had been projected for April but was collected in March as some companies paid early, and a $2.9-billion transfer from the National Housing Trust that was budgeted for June but was received in September. The delayed implementation of the Environmental Protection Levy also contributed to the revenue shortfall. The IFC estimated that the delay resulted in approximately $700 million in revenue not being collected during the June quarter and projected a $1.8-billion revenue fallout for the 2026/27 FY if implementation remained delayed. The legislation for the Environmental Protection Levy was passed by the Senate last Friday with the higher 0.85 per cent levy set to take effect on October 1.