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Economy
Mahesh

20/12/23 06:52 AM IST

Tax ‘HFSS’ foods

In News
  • According to a World Bank report of 2019, worldwide, 70% of all overweight and obese people live in Low- and Middle-Income Countries, with a 55% rise in rural areas across the globe, dispelling the perception that overweight/obesity is only a problem in high-income countries and urban and affluent communities.
Burden of NCDs
  • The Non-Communicable Diseases (NCDs) burden in India has skyrocketed from 38% in 1990 to 65% in 2019.
  • The global burden of diseases study shows that annually, 1.2 million deaths in India can be attributed to dietary risks alone.
  • The economic impact of overweight and obesity in India was estimated at $23 billion in 2017.
  • If unattended, this is likely to rise to $480 billion by 2060.
Shift from dietary habits
  • The ultra-processed food sector in India witnessed a compounded annual growth rate of 13.4% between 2011 and 2021.
  • As the world’s largest producer and consumer of sugar in 2022, the country has seen an alarming surge in consumption of HFSS foods.
  • About 50%-60% of edible sugar, salt and fat produced in India is consumed by the processed food industry.
  • Sales of snacks and soft drinks have tripled over the past decade, exceeding $30 billion last year, indicating a disturbing trend in dietary habits.
  • This not only poses severe health risks but also impacts productivity and economic growth, necessitating urgent interventions to curtail the rising consumption of these products.
Tax on HFSS food
  • There is a global trend of utilising fiscal measures to combat obesity.
  • Taxation is considered to be an effective means to reduce the consumption of these products as most consumers are price responsive towards them.
  • While taxation on sugar-sweetened beverages (SSBs) is far more wide and used in more than 60 countries, taxation on HFSS food is less common, although rapidly increasing.
  • Some 16 countries including Denmark, France, Hungary, Mexico, South Africa, the United Kingdom and the United States, among others, now have a dedicated tax on HFSS foods.
  • Most recently, Colombia’s “junk food law” introduced a gradually increasing levy on ultra-processed foods, providing a model for other nations.
  • In India, Kerala had also introduced a ‘fat tax’ way back in 2016, which later got subsumed into India’s Goods and Services Tax in 2017.
Implications of high tax
  • The imperative for taxing HFSS arises from significant market failures associated with their consumption, contributing to negative externalities and internalities.
  • Negative externalities manifest as societal costs in the form of increased health-care expenditures.
  • For example, the escalation of diabetes and obesity due to increased HFSS consumption leads to external costs imposed on society, necessitating substantial health-care expenditures, borne through elevated taxes to finance public health insurance such as the Ayushman Bharat Yojana.
  • Meanwhile, internalities, stemming from consumers’ limited understanding, influenced by aggressive marketing, result in inadvertent harm to themselves.
  • Taxes can offer a targeted and effective means to curb detrimental consumption habits, thereby reducing societal burdens.
  • Implementing such taxes has shown promise in various countries, demonstrating a reduction in the purchase of unhealthy items.
  • Tax rates need to be differentiated based on the nutritional quality of the food so as to incentivise product reformulations.
  • For example, it is possible to have a GST system with HFSS foods in the highest rate structure while their healthier alternatives have either zero or minimal tax rates so that the net tax burden on a household’s food consumption basket remains the same.
  • This would create a level-playing field between HFSS and their healthier alternatives, making healthier food choices more affordable and accessible.
Case in India
  • Current GST rates on ultra-processed foods, such as salty snacks and SSBs, do not adequately align with nutritional content.
  • For example, tax on SSBs with a 28% GST rate and 12% compensation cess, overlooks sugar content.
  • All aerated beverages are taxed uniformly as well. Similarly, juices face a flat 12% rate, irrespective of their fruit and sugar content.
  • Salty snacks are taxed at 12% regardless of their salt content.
  • Such inconsistencies fail to consider the varying nutritional impact of these products and hence show limited impact on altering consumption baskets in favour healthier alternatives.
Way forward
  • Effectively designed taxes can reap multiple benefits — they can act as a deterrent to consuming HFSS;
  • promote healthier food choices; prompt manufacturers to reformulate foods;
  • improve public health outcomes; reduce the burden on the health-care system, and
  • foster the nation’s well-being. When combined with other measures such as promotion of nutrition literacy and effective food labelling, it can be a more potent tool to combat the rising epidemic of overweight and obesity by creating a more sustainable and equitable food system.
Source- The Hindu

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