Editorial: For sin taxes to be successful

NEW DELHI: Tax sceptics tend to scoff at any move to increase taxes on tobacco, alcohol and sugary drinks to improve public health outcomes. The popular cynic’s axiom is that if alcohol doesn’t kill you, sin taxes will. So, zero sum.

However, the World Health Organisation (WHO) says there’s an impressive body of research evidence suggesting that high taxes on sin products do work. For instance, between 2012 and 2022, tobacco taxes were raised in 140 countries such that prices went up by 50% on average, and many governments reported a double benefit: reduced consumption of tobacco products and increased funding available for public health initiatives.

Citing this precedent, the health agency issued its “boldest-ever call for health taxes” at the UN Financing for Development conference in Seville on Wednesday, July 3. Naming it the ‘3 by 35 Initiative’, the WHO is urging countries to tax tobacco, alcohol, and sugary drinks — the Big Three — to raise their prices by at least 50% by 2035. The goal is to make $1 trillion available for public health programmes over the next 10 years.

Peer-reviewed studies show that a 10% increase in cigarette prices typically leads to a 4–6% reduction in consumption in high-income countries, and up to 8% in low- and middle-income countries, where price sensitivity is higher. For alcohol, price elasticity varies with the type of product, but generally, a 10% price increase results in a 4–10% reduction in consumption. Sugary drinks are, on the whole, more difficult to predict because of the variety of alternatives available, but a global analysis by the British Medical Journal found that a 10% tax led to an approximately 10% decrease in sales.

Several countries have reported good health outcomes, albeit with a lag, after imposing higher taxes on the Big Three products. Philippines, Thailand, and Turkey reported declines in smoking prevalence and tobacco-related deaths. In Russia, high alcohol taxes since 2010 correlated with a 43% drop in alcohol-related deaths by 2016.

WHO’s double-barrel strategy of high sin taxes shoring up health budgets sounds good at a time when the North is pulling out of public health programmes in the Global South, but would it work in India? India’s experience with tobacco taxation is promising, but the health outcomes have been mixed due to the slide to alternative products. In the case of alcohol, the picture is more complicated due to states’ dependence on excise levies on liquor, and the nexus with politics. As for sugary drinks, the corporate sector tends to play spoiler in any intervention to cut consumption, mainly by smuggling in sugar in its many different forms.

In India, governments have consistently used high taxes to curb consumption, with some success in respect of cigarettes but not so much with overall tobacco use. Despite tax increases going up to 15% per year during some periods and legal cigarette sales coming down 28% over 40 years, overall tobacco consumption rose 49% due to the availability of alternative products: illicit cigarettes, bidis and gutkha.

So, the WHO’s 3 in 35 Initiative is welcome, but for it to achieve the envisaged results, India needs to enforce uniform taxation across all tobacco and liquor products and apply a water-tight definition of contents in sugary drinks. And then, that’s only half the job. There’s still the task of shovelling the enhanced tax revenues into public health programmes.