Cigarettes or alcoholic drinks cost a lot more than their production cost. In fact, the tax levied on such items is higher than most products that you use on a daily basis and comprises a major portion of their prices. The idea is to discourage people from consuming unhealthy or junk food products by making them unaffordable. Even in the Budget presented on Wednesday, the finance minister enhanced tax on cigarettes by 16% . This higher tax is called ‘sin tax’.
While taxing unhealthy food choices is not new, experts wonder if the move is sufficient in itself. People are becoming increasingly susceptible to lifestyle diseases like cancer, diabetes, uncontrolled hypertension and cardiovascular diseases. Also, it’s becoming important for the health-conscious and globally-aware consumer to keep tabs on how much calorie, salt or sugar intake does a 100 gm pack of snack or biscuit or a sugar-sweetened aerated and flavoured water contain.
Junk or unhealthy food has been a category suffering a higher burden of tax for many years now. Even under the VAT regime, various high glycaemic index (GI) foods have been charged a higher rate of tax. This practice has continued under the GST regime, too, where certain junk foods, including sugary carbonated beverages, bear a 40% rate (28% GST+12% compensation cess), says Sweta
Rajan, partner, Economic Laws Practice, a full-service law firm in India with offices in Mumbai, New Delhi, Pune, Ahmedabad and Bengaluru.
India is not alone in this approach. Globally, many countries levy higher taxes on junk foods given the social impact that such foods have. Higher VAT in Canada and many EU countries, and sales tax in the US are levied on sweetened beverages and high energy foods. Implementation has proved to be a challenge owing to classification issues. “However, given the revenue pressure that the government is facing with taxes being levied on staples like rice, butter and milk products, high taxes on junk foods seem understandable,” says Rajan.
Under the Food Safety and Standards Act, 2006, the Food Safety and Standards Authority of India (FSSAI) is mandated to frame science-based standards for articles of food and to regulate their manufacture, storage, distribution, sale and import to ensure availability of safe and wholesome food for human consumption. As per an FSSAI spokesperson, the applicability of tax being a policy matter of the Government of India has no relationship with the safety/standards of the said products. However, the FSSAI creates awareness about the consumption of healthier food choices and balanced diet through the Eat Right India movement and also promotes consumption of fortified staples for wholesome nutrition.
Globally, taxes on sugar-sweetened beverages (SSBs) can help countries fight noncommunicable diseases and make people healthier – but this measure can be more effective if taxes are developed in collaboration between health and finance authorities. This is one of the findings from the new WHO report, “Sugar-sweetened beverage taxes in the WHO European Region”, which examines the experience of the 10 member states who were first in the region to introduce the measure. Only 19% of countries in the region tax SSBs.
“Taxation is a cost-effective policy that can improve health at national level. By introducing taxes on sugary drinks, countries can reduce consumption levels of these beverages and lower the associated risks of overweight and obesity, diabetes and other associated diseases,” Dr Kremlin Wickramasinghe, acting head of the WHO European Office for the Prevention and Control of Noncommunicable Diseases and one of the authors of the new report, said. The WHO report focuses on the experiences of Belgium, Finland, France, Hungary, Ireland, Latvia, Monaco, Norway, Portugal and the United Kingdom. Only these 10 of the 53 countries of the WHO European Region have implemented SSB taxes on a national level.
Rushikesh Aravkar, associate director, Consumer Reports South APAC, Food & Drink, Mintel, says, “The discussion on sin tax is not new. In 2011, Denmark implemented a tax on foods containing more than 2.3% saturated fats, which subsequently failed as consumers crossed the border to Germany to stock up on indulgent foods. In 2014, Mexico instituted a 10% tax on sugary drinks, such as juice and soda, which appears to have been successful as sugary-drink purchases have declined in the two years following.”
In recent times, the UK, starting in 2023, is imposing a ban on junk food advertising between 5.30 am and 9 pm. It is also planning to limit in-store access to sweets and price promotions based on volume (eg two-for-one, etc).
In Latin America, junk food laws mandating front-of-pack labelling on ‘unhealthy’ foods have been implemented in Chile, Peru and Mexico, challenging consumers to think more carefully before making unhealthy food choices. In North America, there is not yet a pan-US junk food tax, but there is a discussion about its viability, and a variety of state- or county-level sugary food taxes have been tried, with varying success. Proposals for taxes have also been suggested in Canada. In APAC, sugar taxes are gathering steam. Countries, such as Malaysia, have started with taxes on sugar-sweetened beverages, while others, such as India and the Philippines, are considering broader junk food taxes across categories. So could a sin tax shift Indian consumer behaviour? “It depends,” says Aravkar, adding: “The sin tax initiatives are in line with Mintel Trend Regulation Nation, which discusses how governments have been stepping up to help consumers make better decisions through new regulations. Although taxes are one way to change consumer behaviour, educating and guiding them to make better dietary choices is a more sustainable, long-term solution for improving health.”
Research, as per Aravkar, has shown that additional taxes would need to increase prices of unhealthy food and drinks by as much as 20% to have a significant impact on obesity. That’s because increases below this benchmark have resulted in consumer backlash – to the point that the taxes have been abolished. Therefore, it seems unlikely that sin tax will have a lasting impact on obesity. However, this may be a wake-up call that food and drink manufacturers in India need to bring down their reliance on high sugar and high fat. The growing consumer interest in health and wellness indicates opportunities for brands to innovate better-for-you versions, which could even help circumvent additional taxes. While the Indian government levies additional taxes on products like cigarettes, alcohol, and paan masala to reduce their consumption, owing to their documented negative impacts on human health, there’s enough to link the consumption of, let’s say, red meat to hypertension, stroke and heart disease.
“We show no signs of acknowledging this link,” says Bharati Ramachandran, CEO, Federation of Indian Animal Protection Organisations (FIAPO), adding, “Even if we were to dismiss the health hazards arising out of meat consumption as an individual choice, what cannot be dismissed is the suffering of billions of farmed animals in animal agriculture and the impact of such large-scale agriculture on climate change. Parliaments in Germany, Sweden and Denmark are already discussing the imposition of sin tax on meat. India must take the leadership in showing the way to the world on how to mitigate climate change by taxing the consumption of meat and channelling the extra revenue into finding alternatives to livelihoods based on animal agriculture.” Ramachandran suggests that promoting alternatives also helps.
“Standardising the tax will not work either. The policies need to ensure that small vendors and consumers’ social and economic limitations should not bear the brunt of this sin tax. This step can pave the way for subsidising plant-based foods and alternatives, creating opportunities for people to transition their lifestyle that can help animals, human health and the environment,” she says.
The label deterrent
The FSSAI has taken many regulatory measures to help consumers make informed and healthier food choices. To improve nutritional status of children, the FSSAI has notified the Food Safety and Standards (safe food and balanced diets for children in school) regulations, 2020. With effect from July 1, 2021, it restricts the availability of foods high in fat or added sugar or sodium in school campuses or within 50 metres of the schools. This regulation prohibits the advertisement or marketing of food products, high in saturated fats or trans fats or added sugar or sodium within school campuses or within a 50-metre radius. The front-of-pack nutrition labelling (FoPL) under Draft FSS (Labelling and Display) Amendment.
Regulations 2022 for making healthier food choices has been identified as a potentially effective policy tool to help promote positive food environments and support consumers in making better and informed food choices through the presentation of nutritional information. In fact, the Regulation on Food Safety and Standards (Food Products Standards and Food Additives) Tenth Amendment Regulations, 2020 was notified to limit industrial TFA (trans fatty acids) to not more than 3% in all fats and oils in January 2021 and not more than 2% in January 2022. The regulation was extended to food products (having edible oil/ fat as an ingredient) and to limit industrial trans fatty acids.
Last year, the FSSAI had asked food aggregators Swiggy and Zomato as well as restaurants to furnish nutritional values and allergens on menu and all food items sold on their platforms. The body has also asked food service establishments having a central (food) licence and those who run over 10 food outlets and have annual revenue of more than `20 crore to mention calorific value (in kcal and per serving) for all food items displayed on menu cards and booklets. The food aggregators were also required to upgrade platforms so that food operators can add information regarding the nutritional value of food sold by them.
While consumer packaged foods have been advised to start labelling or displaying nutritional information of the items by the FSSAI, food sold through food business operators (FBO) or cloud kitchens did not have this information. The aim is to make healthier choices when ordering online. However, this inclusion is a feature for some restaurants, as per Zomato.
The foodtech brand has been in the process of upgrading its website and app to educate restaurant partners who weren’t sharing this information. “We’ve always believed in enabling the customer to make an informed choice; so, this perfectly aligns with our ideology. We already show nutritional and allergen status where a restaurant voluntarily shares the required information with us. After the FSSAI guidelines, we are upgrading our technology and working with restaurant partners who have now been mandated to enable customers to make an informed choice,” a Zomato spokesperson had shared.
Meanwhile, Dr Arun Gupta, convenor, Breastfeeding Promotion Network of India (BPNI) says the exponential growth of the ‘junk’ or processed food industry has left an indelible mark on the health of Indians.
“We are now the obesity and diabetes epicentre of the world. Cancer rates are growing at an alarming pace. Younger people are at risk of heart disease. The decision to choose a label should be kept free from commercial interest to avoid any conflicts of interest. The choice of the label should be based on science and public health interest must be at the centre of debate. Industry loves HSR as it does not reflect the nutrients of concern, misleads people who think that food products are healthy because of stars and aggressive marketing tactics,” says Gupta.
Health Star Rating System (HSR) is an Australian and New Zealand initiative that assigns health ratings to packaged foods and beverages.
Packaged food products are usually projected as healthy using HSR as they receive ½ to 5 stars, which give an impression of being good and more stars means healthy, which is misleading. This way consumption of substantially unhealthy food could increase and defeat the very objective for which FoPL is being designed. HSR can be confusing for consumers, if packaged food labels show any ‘health claim’ by using positive nutrients.
Globally, the FoPL system has been regarded as the best practice to supply ample information on food choices. According to WHO, FoP is defined as “nutrition labelling systems that are presented on the front of food packages in the principal field of vision; and present simple, often graphic information on the nutrient content or nutritional quality of products, to complement the more detailed nutrient declarations provided on the back of food packages.”
While some key considerations are taken in developing an FoPL system in a country, the Codex Alimentarius Commission (Codex), has undertaken work on FoPL. Codex is a collection of internationally recognised standards, codes of practice, guidelines, and other recommendations published by the Food and Agriculture Organization relating to food, food production, food labelling, and food safety.
Countries like Brazil, Chile and Israel have labelling laws that stress on FoPL in the packaged food industry as an index to fight obesity and non-communicable diseases (NCDs) such as heart disease, stroke, cancer, chronic respiratory diseases and diabetes.
Health is wealth
Dietary habits and health have been extensively investigated for years, and specific dietary components or nutrients are associated with increase or decrease of health risk. Experts aim to increase awareness about the relationship between dietary habits and health.
Diet and disease go hand in hand, according to Dr Venkata Krishnan, senior consultant, internal medicine at Artemis Hospitals in Gurugram. While a poor diet may leave you vulnerable to illnesses and infections, a good diet will make you healthier, he says. “Increasing intake of natural, unprocessed foods is crucial for reducing food allergies. The most important element ought to be the presence of beneficial bacteria in the gut. Diets high in fibre effectively break down food molecules, improving digestion. Saturated and trans fats, sodium are kept to a minimum,” said Krishnan at a webinar by the Associated Chambers of Commerce and Industry of India.
The purpose of nutritional information labels on food helps consumers determine if the product is suitable / healthy or not.
“Salt, sugar and fat levels elevate the taste and texture of the food. But their over consumption is closely associated with obesity and correlated chronic disorders. And not everyone can understand the information regarding preservatives and chemicals. So, if individuals have allergies, it might be life-threatening in some circumstances,” says Zainab Cutlerywala, faculty at Pune-based Institute of Nutrition and Fitness Sciences (INFS) imparting comprehensive and practical knowledge in health and fitness.
As per Cutlerywala, other countries have opted for measures like traffic signal labelling for better understanding of the consumer and levying tax on companies for high sugar content in products. This has forced the companies to reduce the sugar content in food items. However, in India, transparency is not achieved. “A comprehensive, easy-to-understand label would benefit the customer but not as much as the producer,” she says.