Adam Smith, the 18th-century social philosopher and political economist renowned as the father of modern economics, observed in his seminal work, The Wealth of Nations, that “sugar, rum, and tobacco are commodities which are nowhere necessaries of life, [but] which are ... objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.”
Accumulated evidence on taxes from around the world, particularly on tobacco taxation, shows that taxing these products can offer a “win-win" for countries strengthening their health systems by increasing both positive health outcomes and domestic resources to fund priority investments and programs. The public health impact, revenue generation and increased equity that could result from taxing specific products all point to the value of a redoubled and sustained effort to support the utilization of this fiscal policy as a global public good.
To move this global agenda forward, 35 participants from 12 low- and middle-income countries came together in Nairobi, Kenya, on February 13, 2018, to participate in a learning exchange of country experiences organized by the Joint Learning Network for Universal Health Coverage (JLN) with support from the World Bank’s Global Tobacco Control Program and co-hosted by the Ministry of Health of Kenya. This event was the first offering of a new JLN collaborative on Fiscal Policy for Public Health.
The country experiences shared during this event demonstrated how increasing tobacco taxes plays an important role in raising the price of tobacco products and consequentially, reducing consumption and generating new revenue for the public sector. The evidence from taxing alcohol and sugar-sweetened beverages combined with non-fiscal measures such as regulations on advertising and sales to minors, strict enforcement of drunk-driver laws and educating consumers are also increasingly revealing a positive public health impact.
Countries’ Experiences with Sin Taxes
However, in the case of tobacco taxes, taxation policies remain underused globally – especially in low- and middle-income countries. The good news is that there is a growing interest among policymakers and public health professionals in leveraging these fiscal options to increase resources for health systems.
The range of experiences presented by Kenya, Malaysia, Mexico, Ukraine, the United Kingdom, and the United States at the JLN event established taxation as both an effective and progressive policy. For example, the significant increase in tobacco taxes in Ukraine over the past decade has generated tax revenues amounting to approximately 1.7 percent of the country’s GDP in 2017 and resulted in a 20 percent reduction in the proportion of the population who smoke tobacco daily. The progressive tobacco taxation in Ukraine benefits low-income Ukrainians 10 percent more when direct costs like out-of-pocket health care expenses are factored in and indirect costs such as lost days of work due to sickness are averted.
In the case of Malaysia, recent studies show that to achieve a further reduction in the overall prevalence of smoking among adults – from 24 percent in 2015 to 15 percent in 2025 – the excise tax should be raised from its current rate of 47 percent to 78 percent of the retail price.
An increase in alcohol taxes in the United Kingdom is predicted to reduce the consumption and avoidance of new cases of alcohol-related diseases and related health care costs. Similarly, to confront the alarming rise of obesity and diabetes in Mexico, taxes on sugar-sweetened beverages led to a 10 percent decrease in sales. Meanwhile, the city of Berkley, California documented a 21 percent reduction in self-reported sugar-sweetened beverage consumption over the initial implementation phase of a new tax.
Kenya offers important lessons on real-time political economy and implementation challenges, reiterating the difficult path to introducing new fiscal policies and the value of learning from other countries’ experiences.
The case of Kenya indicates that necessary elements for a successful tax campaign include collaboration with solid, technical in-country partners that can lead the effort on the ground, sustained advocacy and lobbying with key governments officials and stakeholders, the generation of critical data to inform and support advocacy messaging, constant monitoring and countering industry interference and tactics, and proactive public engagement through appropriate media channels.
Key Conclusions on Fiscal Policies for Public Health
During an interactive brainstorming session, JLN participants focused on the public health implications of fiscal policy measures in addition to their traditional role of raising revenue and shared their countries’ experiments with these approaches.
The participants identified several key take-home messages, including:
- As a major next step, considering taxing tobacco if it has not yet been implemented in countries and advocating for the introduction or increase of taxes on tobacco and sugary drink products to reduce health risks and the onset of related diseases to policymakers;
- Directing additional efforts to build capacity on the use of simulation models so that the expected impact of policy scenarios can be assessed;
- Documenting best practices, lessons learned and peer countries experiences in managing implementation challenges; and
- Exploring ways countries could work together on these issues.
The use of fiscal policies such as the taxation of products that pose major health risks for noncommunicable diseases is clearly among the most cost-effective measures for health systems as countries seek to achieve universal health coverage.
If these fiscal policies remain underutilized, the growing burden posed by tobacco and alcohol use and the consumption of sugary beverages will increase the number of people diagnosed with noncommunicable diseases, raising the demand and utilization of costly medical care and undermining the financial sustainability of entire health systems.