Fiscal Debate over Excise Tax on Soft Drinks and Tobacco: Finance Ministry Proposes Moderate Increases; Civil Society Calls for More Ambitious Measures
The 2026 Economic Package has reopened the debate around so-called “health taxes” in Mexico. The Ministry of Finance has proposed raising the excise tax (IEPS) rates on sweetened beverages and tobacco products with the aim of discouraging their consumption and strengthening tax collection. Organizations like Fundar and El Poder del Consumidor argue that the proposed adjustments fall short of international recommendations and are calling for more ambitious increases, along with automatic inflation adjustments, to ensure the tax’s long-term effectiveness.
For sweetened beverages, the government’s proposal would raise the tax rate from 1.64 to 3.08 pesos per liter. In contrast, Fundar recommends a tax of 7 pesos per liter, with annual inflation indexing, so that the tax represents just over 20% of the final retail price—a threshold that the WHO and PAHO associate with more substantial reduction in consumption. Under this scenario, the final price would increase by about 22%, tax revenue could reach nearly 105 billion pesos, and sales volume could fall by approximately 27%, according to estimates from these organizations. Under the Finance Ministry’s current plan, projected revenue for 2026 would be around 75 billion pesos. The issue is well-known: Mexico is among the largest soft drink consumers in the world and faces high costs related to obesity and diabetes for both households and the healthcare system.
For tobacco products, the executive branch is proposing to increase the ad valorem tax rate from 160% to 200% and to gradually adjust the specific tax rate through 2030. Even with these changes, the total tax burden would remain below the 75% of final price recommended by the WHO. Fundar, on the other hand, proposes adding 3 pesos to the specific tax per cigarette—currently at 0.64 pesos—and maintaining the current ad valorem rate. Under this scheme, more than 84% of a pack’s price would come from excise and value-added taxes, annual tax revenue would exceed 78 billion pesos, and households would see significant savings in medical expenses, according to their calculations. This debate also brings in concerns about illicit trade, enforcement capacity, and regulatory design—all key factors in ensuring that price increases in the formal market do not drive products into the black market.
The current fiscal climate helps explain the discussion. After years of pressure on public finances—driven by reduced IEPS on fuels in 2022-2023, support for Pemex, pensions, and increased investment—2026 is shaping up to be a period of fiscal consolidation. Improving revenue collection without raising general VAT or income tax rates is a priority, and IEPS on products with negative health impacts are seen as a tool with double dividends: raising revenue and addressing negative externalities. At the same time, their impact on overall inflation would be limited due to their low weight in the consumer price index (INPC), although the one-off price increases would require communication and monitoring to prevent second-round effects, especially as the central bank cautiously eases its policy stance as underlying inflation recedes.
Another angle concerns the use of the revenue. “Tagging” funds for prevention programs, provision of drinking water in schools, or health infrastructure is a recurring demand from civil society. The Finance Ministry typically channels IEPS revenue into the general budget, but establishing monitoring mechanisms, health targets, and periodic reporting could strengthen the tax’s legitimacy. Automatic inflation adjustments to tax rates are also crucial to prevent their real value from being eroded, as are complementary policies: nutrition education, access to non-sugary beverages, smoke-free spaces, and point-of-sale controls.
In summary, Congress has room to adjust both amounts and policy design. The balance to be struck involves three key goals: public health, sustainable revenue, and effective implementation. Moving Mexico’s tax burden closer to international standards, ensuring proper oversight, and making the use of resources more transparent will determine whether these changes translate into lower health costs and stronger public finances—without destabilizing prices or fueling informal markets.
Final thought: the proposal represents progress, but evidence suggests that higher, well-indexed increases are more effective at reducing consumption and improving revenue. The key will be calibrating tax rates, closing off illicit avenues, and ensuring that revenue strengthens prevention and care for chronic diseases, all in a context of fiscal consolidation and normalizing inflation.
