By Rahul V Kumar

There could be several reasons why a 14.5 per cent fat tax on a burger and related products (sandwiches, pastas, doughnuts, pizzas etc) was imposed by the new Left government in Kerala. High on that list could be the possible projection by the media that the government is concerned with the health of its citizens. Given that individuals in Kerala are well aware of the various health concerns as well as emerging issues (fed by innumerable awareness campaigns, health magazines, as well as television programmes in which they directly interact with doctors) a tax on burger seems a tad too stretched to meet the goal of better health. Considering these speculations the government seems to have categorised the tax under the head of revenue generation. However, the implied notion of a tax to promote health looms large over this budgeted move.

The question is does taxing to reduce consumption serve the purpose of improving health?

It seems to resonate with the high taxes on alcohol which has not proven to reduce consumption. As in the case of alcohol such taxes could also be indicative of a ban on junk food in the near term. It is very unlikely that individuals in Kerala are unaware of the health consequences of ‘junk’ food. The probability that the choice of ‘junk’ was an informed consent between the producers and the consumers seems very high. If individuals have thus chosen ‘junk’ over ‘non-junk’, it indicates that the market has strengthened in response to demand. This is same as the case where there are increasing numbers of outlets serving organic food items. Left to its own the market will signal individual choices more freely than when controlled thorough restrictive taxes. The consequences of such artificial restrictions could prove costly.

There are initially some definitional concerns in taxing selected food products. How do we define and tax a group of ingredients which are categorized as a ‘burger’ or ‘pizza’ or ‘pasta’? Suppose tomorrow these ingredients are modified to retain much of its similarities but with a change in name and form does it still stand taxing? The problem is that there are innumerable variants in which these ingredients can be assembled essentially retaining its taste. The question is: Is the burger ‘junk’ or is it the combination of ingredients that make it ‘junk’? So do we tax the burger or the ingredients which cause fat? It is only a matter of reassembling these ingredients before the market is able to retain the old habits. That said the question of what constitutes junk also needs to be re-examined.

An attempt to cover the distance from fries to veggies | Photo Courtesy: Unsplash

Selective taxation of food which entered our culture from outside might indicate intolerance of other cultures. Consider for instance our growing eating styles and habits in Kerala. There has been large increase in the number of small vendors serving fried snacks across the state. Individuals can be seen crowding such joints in the evenings and enjoying their share of these products. This is also due to various reasons; women working, difficulty to manage maids, inflation of the food ingredients higher to the food products etc. All these products irrespective of what they constitute are high in unhealthy fats and cholesterol. If health is a concern these eateries also stands questioned. Such small vendors are significant drivers of the market for food and food products and any restrictions on them are likely to influence demand generation in the economy.

Long term effects of such policies can be examined through Bihar’s case where tax has been levied on samosas and sweets.The case of a fat tax in Denmark and the ‘metabo’ law in Japan run parallel to such policies. Denmark was forced to abandon fat tax within a year of its introduction.

There is an issue with the tax on basmati rice, pizza, burger and wheat products at the same time. It is unlikely that the government intends to do as it covers all the food items available in the market except our own rice.

An obvious consequence of the tax would be an increase in price of products served in the growing food industry sector in Kerala. There is an issue with the tax on basmati rice, pizza, burger and wheat products at the same time. It is unlikely that the government intends to do as it covers all the food items available in the market except our own rice. At the same time, there is an increase of tax for coconut oil that will lead to the price rise in the food served at restaurants again. In addition this could also shift usage from coconut oil to other edible oil available in the market.

Awareness and the availability of the data on the ingredients front in the so called junk food is one of the solutions rather imposing a partial ban through higher taxes. Let the data be out as in the case of Mac, KFC and Burger King. There are also questions that remain unaddressed and needs further investigation. How do we define saturated and unsaturated fat and to what percentage? Who and how we will decide the content to tax. It is like good cholesterol and bad cholesterol. Especially in Kerala, how will it affect the middle class and upper middle class who consume these? Will they be affected by this rise? What happens to the beef and other ingredients which could also be a fat source?

Obesity is a major health issue which is a concern for most developed nations. Several countries have adopted reforms and measures to decrease instances of obesity. A possible explanation in most of these reforms has been to transfer the onus to the private sector to sponsoring healthcare. However, transferring healthcare cost to the private sector through taxes does not simultaneously reduce the role of the government in this sector. If health is the major concern the government ought to liberalize the sector and allow for competition to prevail. Insurance coverage could be enhanced; health vouchers could be issued; and foreign investments could be liberalized for the sector and so on. These factors could take our health status to higher levels. A tax is more likely to disrupt a growing food industry than creating a necessary safeguard for the health of citizens.

This article was originally published on Centre for Public Policy Research

Featured Image Source: Nabil Boukala via Unsplash

Posted by The Indian Economist