After alcohol ban, the Kerala government has proposed a 14.5% “fat tax” on junk food items like burgers and pizzas sold at branded fast-food restaurants in the state.
Kerala may have taken a clue from the Bihar government’s decision in January to impose a 13.5% VAT on items such as samosas, salted peanuts, sweets and branded snacks costing more than R500 per kg to make up for the revenue loss on account of the ban on liquor in the state.
While Kerala hopes to ramp up R10 crore a year from the tax, there is no clarity about the purpose for such a levy.
Tax experts feel that these measures are aimed at restoring the state’s broken finances, if one looks at other budgetary announcements, like the decision to impose a 5% tax on packaged basmati rice, coconut oil and products made of wheat.
State finance minister Thomas Isaac said the growth rate of the state has gone below the national average for the first time in the last two decades, due to the Gulf crisis and fall in prices of natural rubber. The growth in tax revenue is 17%, implying there is still a deficit of eight percentage points in comparison to its overall target of 25%, experts say.
For some Kerala policy-makers, addressing obesity-related issues is a major concern. Kerala happens to be the home to the second-largest population of obese people in India, behind Punjab, and just ahead of Delhi, with 17.8% of men and 28.1% of women reporting a body mass index (BMI) above 25.
A May 2016 study by the British Medical Journal said that a tax on unhealthy food and beverages could slow the rising rates of obesity in the same way as taxing cigarettes leads to decrease in the number of smokers.
Another study published in the medical journal Lancet in 2014 says that India is only behind the US and China in the global hazard list of top-ten countries with the highest number of obese people. India already has the highest mortality rate due to diabetes.
Close to 8% of the country’s population suffers from diabetes, the third-highest prevalence among countries after China and the US.
According to the WHO, this number is likely to double within 20 years. South Asians, especially Indians, are genetically-predisposed to diabetes. In India, nearly 10% of the general population is a victim of this disease and 65 million people are living with this silent killer.
Health experts feel that there is a strong possibility that consumption patterns will change due to the the high rate of taxation. It can encourage individuals to reduce their fat consumption and eat healthier food, which can reduce lifestyle diseases like diabetes.
Hailing it as an important public health measure, Anoop Misra, chairman, Fortis C-DOC, says that fat tax is a great initiative and should be extended to all states in India. “This tax should cover sugar-sweetened beverages, oils and roadside vendor-produced fried food as well. Further, taxes on green vegetables and fruits should be relaxed.”
“A selective taxation mechanism that lowers the relative prices of healthier options, and is reflected on the shelf, can serve as an effective health policy tool in the efforts to control obesity,” a paper published in the US in 2014 stated.
But the quick service industry has termed Pinarayi Vijayan government’s budget move as “business-unfriendly” and “detrimental” to consumption.
Industry experts say there is no evidence to suggest the blanket ban will actually end up making anyone healthier and change consumption patterns.
If Kerala is so keen to check unhealthy eating patterns, it should also target the unorganised sector, according to fast-food chains, who apprehend that this may set a precedent for other states to follow.
“Anything in excess is unhealthy, which includes most traditional Indian savouries and sweets,” National Restaurant Association of India secretary Rahul Singh had said.
“Policies of the state should focus towards spreading awareness which result in moderation, and not deprivation,” the expert said.
Denmark was the first country in the world to levy a tax on all food items with more than 2.3% fat (including cheese, butter, oil, milk and meat). However, the fat tax was rolled back in January 2013, within 15 months of its implementation, as the levy had no effect.
Some previous studies suggest that the sharp tax increase on cigarettes in 2009 has contributed to the dramatic decrease in the number of smokers in the US. And it’s hoped a “fat tax” would work the same way.
While a fat tax has some definite advantages on individual health and will raise revenue for state governments and help shore up budget deficits, it provides no guarantee that the consumer will still opt for healthier food items.