Some people/entities have criticised Kerala’s recent decision to levy a ‘fat tax’ of 14.5% on burgers, pizzas and pastas served in branded restaurants. Is it justifiable?
Let’s look at the issue objectively.
Is obesity a problem in Kerala? The answer is a resounding ‘yes’. Obesity (WHO defines obesity as a body mass index greater than or equal to 30) is prevalent in 30% of the state population and is rising. It is one of the proven risk factors for heart disease and other health problems, such as diabetes, stroke, cancer and other non-communicable diseases (NCDs) whose incidence is rising in Kerala, as in other Indian states. There is a growing evidence from lower middle income countries that urbanisation is positively associated with increased prevalence of risk factors for NCDs, and among all Indian states Kerala has registered the fastest urban growth (21.7%) between 2001 and 2011. Feeling the pinch of the problem, Kerala is appropriate in taking the lead in cracking the risk factors of NCDs.
People who have criticised the ‘fat tax’ recognise obesity as an emerging problem in the state, but their main contention is that the ‘fat tax’ is a wrong instrument applied to a right cause. So, what are the key contentions?
It’s partial: The government needs to deal with the growing burden of NCDs systematically. Like obesity, there are other proven risk factors, such as high intake of salt and trans fats, use of tobacco and alcohol, sedentary lifestyle and so forth. The government needs to tackle all of these comprehensively, why just obesity? The imposition of ‘fat tax’ by the Kerala government is something too little, even if it is not too late.
It’s discriminatory: Even focusing on obesity alone, it is not just western food such as pizza, burger, pasta, French fries and so forth that contribute to obesity. A whole lot of local junk food, such as fried snacks, sugary drinks and other energy-rich food, is floating around, which contributes to obesity. Why single out only a particular class of fast food?
Of dubious impact: The ‘fat tax’ has been imposed without any proper analysis of its impact either on tax revenues or in checking the consumption of ‘taxed’ food. In the absence of such analysis, imposition of ‘fat tax’ is like shooting in the dark.
Sets a wrong precedent: Introducing such a measure carries a risk of setting a wrong precedent that may spread to other food segments too, as feared by the Confederation of India Industry (CII). Further, it sends a wrong signal to the potential investors who are being wooed both by the central and state governments. Why would an investor put its money when government policies are half-baked and lack perspective?
In defence of ‘fat tax’
No doubt, the ‘fat tax’ is partial in nature and what is needed is a comprehensive approach to tackle the risk factors of NCDs. Such a solution would require dealing with population-based interventions that tackle individual risk factors and also addressing social and environmental factors that condition individual behaviours and choices. This calls for a multi-sectoral approach involving coordination among several stakeholders and a longer-term view. The ‘fat tax’ needs to be viewed as a baby step in the state’s long march against the rising tide of NCDs.
Admittedly, it is discriminatory as well, but what is being taxed for now probably makes good sense from the standpoint of administrative ease. A lot of junk food is prepared in tiny, standalone enterprises. Many of them may not even be in the tax net. But eventually tackling of obesity would necessitate bringing such producers in the tax net.
Further, the ‘fat tax’ is neither expected to mobilise significant revenue nor likely to have much of a health impact. But it has a great symbolic value in conveying the message of what is beginning to follow.
Unhappy with this move, the CII has asked the Kerala government to review its decision. In my view, this is not a progressive, forward-looking position to take. Imagine the CII, instead, suggesting that it will work with this food industry segment, whose interest it represents, to make their offerings healthier and tastier so that it not only doesn’t attract special tax but in fact boosts their sales. Taking such a position is not far-fetched, considering that in many countries the industry works closely with the government/regulators to reduce harmful food ingredients. For example, in Argentina, the industry works closely with the National Commission to eliminate trans fats and reduce salt in processed food.
Instead of swimming against the tide, the CII is well advised to ask the state government for a policy perspective in control of all risk factors for NCDs, and not just obesity, so that it can prepare the industry better.
The author is a development economist, formerly with the Bill and Melinda Gates Foundation and the World Bank