Ruth Lopert a Fellow at the Center for Global Development (CGD) discusses how to frame health taxes to strengthen public finances and advance population health. Health taxes, such as alcohol taxation, is specifically important for low- and middle-income countries (LMICs) where development assistance is decreasing and where there is a need for increasing domestic resources to address the growing non-communicable disease (NCD) burden as well as the existing communicable disease burden.

In the era of sustainable development, universal health coverage is one of the key pillars to reach the sustainable development goals (SDGs) and the Agenda 2030. For LMICs, this is proving challenging as they move away from aid. With donor funds diminishing there is an increased need for governments to raise and mobilize more domestic resources. LMICs must also address the growing NCD burden from illnesses such as cancer and heart disease along with the existing communicable disease burden from illnesses such as malaria, HIV/ AIDS and tuberculosis – common risk factors for both infectious diseases and NCDs are tobacco and alcohol harming people and societies around the world.

In fact alcohol use is one of the top risk factors for NCDs, along with tobacco use, unhealthy diet, lack of physical exercise and air pollution. However, it is only relatively recently evidence has accumulated to support the health benefits of taxing harmful products.

Currently more than 160 countries tax alcohol, 188 countries tax tobacco, and taxes on sugary beverages exist in some form in at least 39 countries. The focus of these taxes used to be to increase revenue. As of recent this focus has been shifting to improving public health.

For LMICs excise tax, a form of health tax, can be an ideal source of revenue while improving public health. These are some of the easiest taxes to collect making them cost-effective. Much of the international support to LMICs trying to mobilize additional revenues has been focused on income taxes and VAT, with health taxes seen as, at best, a modest, complementary source of funds. However, a dynamic approach could be built to collect these cost-effective health taxes, building on the experience to develop effective tax-collecting institutions.

The potential of alcohol taxation

Movendi International has reported how alcohol is an obstacle to achieving 14 of the 17 SDGs. Alcohol taxation has been shown to be a catalyst for the progress towards the SDGs.

Already in 2010, the World Health Report said:

Raising taxes on alcohol to 40% of the retail price could have an even bigger impact [than a 50% increase in tobacco taxation].

Estimates for 12 low-income countries show that consumption levels would fall by more than 10%, while tax revenues would more than triple to a level amounting to 38% of total health spending in those countries. “

World Health Report, WHO, 2010

Health taxes have been scientifically proven to be highly impactful, cost-effective and pro-poor. Considering the alcohol burden, the World Health Organization recommends increasing health taxes as one of their three best buy policy solutions to prevent and reduce alcohol harm. The best-buys are the most value-for-money options to reduce alcohol harm with significant returns on investment.

Implementation of the three best buys would result in a return on investment of $9 for every $1 invested. Over 50 years, a 20% global increase in alcohol taxes alone could avert nine million premature deaths. Revenues from excise tax, alcohol company taxes, and licensing fees could also help cover, or even meet, the costs of a comprehensive alcohol control programme, the prevention and treatment of disorders caused by alcohol use, as well as contributing to the funding of other health and development priorities. A 20% increase in the price of alcohol through higher taxes could accumulate as much as $9tn in increased revenues globally over 50 years.

Millions of lives & Trillions of dollars saved
A 20% global increase in alcohol taxes alone could avert nine million premature deaths. And it could accumulate as much as $9tn in increased revenues globally over 50 years.

Technical aspects of health taxation

To support countries in scaling up implementation of best buys interventions, a new WHO led initiative called SAFER was launched in 2018.

The effectiveness of health taxes relies on several factors. To obtain the maximum health benefit and revenue from these taxes they should follow the following rules:

  • Be of simple design.
  • Rise automatically with inflation and wage growth, known as tax indexation.
  • Be coordinated with neighboring countries. This reduces cross-border trade issues.
  • Connect with the public view of important investments. To increase public support, revenue from health taxes should be invested to what the public thinks is important.
  • Be designed with attention to the potential trade-offs between improving health and increasing revenues.
  • Be consistent with a country’s overall context—economic, social, and political—as well as its existing tax system and strategy for the future.

Movendi International has long advocated for utilizing alcohol taxation to build stronger health systems and reach development for all.

Alcohol taxation holds significant potential for population health, for helping achieve the SDGs and also for significantly contributing to financing health and development.

As such Alcohol taxation is a triple win measure:

  1. It helps reduce and prevent alcohol-related harm.
  2. It helps promote health and sustainable development.
  3. It helps raise domestic resources for health and development.

For further reading

Alcohol Policy Best Buys Top Investments For Health, Economy

Source Website: Centre for Global Development