We hear about sin tax. Putting a
heavy burden on the consumers of socially undesirable goods and services is an
appropriate strategy to dissuade the addicts. At present we do have in many countries
higher taxes for cigarettes, liquor etc. There may be two opinions on whether
such fiscal tools have helped controlling excessive consumption of intoxicating
and addictive products. However, governments emerged as gainers because of the
substantial revenue earned from such exercises. It is time to extend such
positive discrimination in tax rates to the segment of unhealthy foods. Not for
garnering large revenue for the state, but to discourage the consumption and to
make people opt for healthy substitutes. This can work, as junk and unhealthy
food products are less addictive as compared to alcohol and tobacco.
(picture: healthmad.com)
There are thousands of medical and scientific reports about
the unhealthy food stuff that are pumped in large scale in the market. Unfortunately,
people like to indulge in such unhealthy stuff. Due to the mass appeal, there
is bulk production of such goods, and consequently they are sold at cheaper
rates. At the same time, the healthy food items are very costly as there is
less demand in the market and therefore economies of scale won’t work. For
example, in many big cities, soft drinks are available at cheaper rates than
pure drinking water. The multinational junk food provider would give you a
large glass of Pepsi packaged along with your burger or pizza, but he would
grin when you ask for a glass of water.
To discourage consumption and to make the consumers pay for
the social and health costs associated with this habit, governments may
consider imposing an additional tax (with an appropriate name like ‘junk food
tax’ to remind about the rationale) on retail junk food. Similarly, to
encourage more people to consume healthy food products, it is necessary to give
all such items tax relief to keep the prices low.
In this millennium, countries all over the world are
thinking loud to bring in a society that is built on equity, welfare,
sustainable lifestyle, and qualitative growth. In such an approach to life,
there should be marked changes in tax policies as well. Taxation is not just an
economic instrument, but also a sociological instrument. Fiscal tools should be
applied to bring in the desired positive changes in the lifestyle of people.
The concept ‘Economic externalities’ by the Economist Arthur Pigou is relevant in this context. He said in his book ‘The Economics of
Welfare’, the Net Private Product (benefit received by the business house) in
certain businesses are relatively large as compared to the Net Social product
(gains for the society and state). As illustrated by him, the alcohol business
results in various social issues, enforcement challenges and crime. The
producer needs to pay for the non-pecuniary externality he created. Therefore
the business is taxed at higher rates. Pigou had argued that the high costs
would definitely reduce the quantity of product produced.
If one analyses the above concept in the current social and
economic context where people, particularly the younger generation are almost
addicted to the junk foods, they would demand more of such goods and the
producers in turn would produce more of such products. Due to large turnover,
the cost of production would fall. The producer would also be smart enough to
gain from the ‘Value Added Tax’ (VAT) regime by shifting much of his tax
burden.
A high cost for the end users would definitely reduce the
consumption of unhealthy food products (that result in negative externalities).
In the current context, the negative externalities are as follows:
Personal level
|
State level
|
Society level
|
Diseases
Cost of treatment
Loss of productivity
|
Costs related to public health delivery
Minor law and order issues
Dent in overall productivity from human resources
Decline in sustainable growth
|
Lack of initiatives to maintain and renew natural resources
Creating a generation that considers junk food life style as normal
and routine
Affects a large cross section of people who survive on agriculture
and allied activities
|
A separate tax with a unique label that conveys the
intention and rationale behind the imposition, (rather than just higher rates)
may be levied on all unhealthy items. For this purpose, food products may be
categorized into different grades or levels after assessing their impact on
health. Most unhealthy foods should be taxed at highest rates (eg. Aerated
sugary drinks, junk foods, Processed food from red meat etc.) Medium unhealthy
foods should be taxed at moderate rates (eg. Processed non-veg products).
Similarly highly healthy foods should be given exemption from all existing
taxes (eg. Organic foods, and unprocessed fresh fruits and vegetables) and tax
rebates may be given to moderately healthy goods (fibre rich processed natural
food products).
Now the confusion is what are healthy food products and what are not?
This is a universal confusion! (See my article: ‘Tell me what should I eat?’) There
are individuals and groups arguing in favour or against a particular food item.
The decision should be left to a team of independent health professionals to
recommend food products to be categorized under various levels similar to what
mentioned above. That means , we need to have an exclusive Food Standards
Authority for determining above classification.
The summary: Let the addicted pay more for his
unhealthy indulgences. Let that money make the healthy food much cheaper so
that more people go for it!
(c) Sibichen K Mathew
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