Context
The proposed 20% to 30% Healthy Tax on foods high in fat, sugar, and salt (HFSS) is intended to tackle the non-communicable disease (NCD) epidemic in India that is fueled by the consumption of ultra-processed food. Proponents see it as a sort of Pigouvian tax to cut health expenses and motivate product reformulation and critics say that it is regressive, potentially leading consumers to opt for unregulated products.
Introduction
- The Policy Proposal: Implementing an indirect tax (20-30%) on foods High in Fat, Sugar and Salt (HFSS) is gaining global and domestic momentum.
- Main objective: To discourage consumption of ultra-processed foods (UPFs) and so promote public health outcomes.
The Rising Burden of Non-Communicable Diseases (NCDs)
- The Epidemiological Transition: India is in the midst of a transition from infectious diseases to chronic lifestyle diseases.
- The statistics: World Health Organisation (WHO) says that almost 65% of deaths in India are due to NCDs.
- The Drivers: Aggressive marketing of low cost, low nutrient UPFs, rising disposable incomes and rapid urbanization.
- Economic Cost: The human cost of diabetes, cardiovascular diseases and cancers is enormous, resulting in significant out of pocket costs to the household budget and national productivity.
Rationale Behind Taxing HFSS Foods
- The Pigouvian Principle: Economists classify HFSS taxes as “sin taxes” or Pigouvian taxes, designed to correct negative externalities.
- Price Elasticity: Raising the retail price via taxation has a direct impact on demand, particularly for price-sensitive socio-economic groups.
- Industry Reformulation: High tax bands force food manufacturers to reformulate products to reduce the sugar and sodium content in order to keep the lower tax bands.
- Revenue Generation: Funds collected from such taxes can be allocated specifically for the public health care systems and for the purchase of fresh fruits and vegetables.
Global Best Practices and Outcomes
- The Mexican Model: In 2014, Mexico added an 8% tax on non-essential energy-dense food items and a specific tax on sugared beverages that led to a sustained reduction in purchases of 5%-7%.
- The UK Sugar Levy: The Soft Drinks Industry Levy (SDIL) forced over 50% of manufacturers to reduce sugar content prior to its formal implementation.
- Kerala’s Fat Tax: Kerala is the first state in India to implement a ‘fat tax’ of 14.5% on burgers, pizzas and donuts sold in organized outlets, which was incorporated into the Goods and Services Tax (GST) in 2016.
Challenges in Implementation
- Regressive nature: low income households have to invest a larger proportion of their income in food, so that uniform taxes can have a disproportionate effect on the poor if there is no cheap and healthy alternative available.
- Definition and Categorization: Defining what constitutes an “unhealthy food” requires strict scientific thresholds, creating legal loopholes for manufacturers.
- Economic Opposition: High taxes to the food processing industry pose a danger to jobs, food supply chains and agricultural procurement.
- The Substitution Effect: When consumers move away from the taxed organized sector goods to lower-cost, unorganized, and equally unhealthful street foods from which taxes are avoided.
Way Forward for India
- Harmonized GST Structure: GST Council should rationalize the slabs, bringing HFSS products to the maximum rate of 28% or adding the compensation cess.
- Front of Pack Labelling (FOPL): FSSAI needs to introduce mandatory colour coding labels on packaging, to make consumer choices easier.
- Holistic Nutrition Policy: Implements both negative and positive policies, such as combining fiscal measures with positive incentives like access to public distribution systems (PDS) for biofortified millets and pulses.
- Public Awareness Campaigns: Conduct public awareness campaigns at national level to de-normalise the consumption of ultra-processed food items every day.
Source: The Hindu
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