Perceptions of key stakeholders on taxes on tobacco and alcohol products in Nepal
Around the world, taxes on tobacco, alcohol and junk food have been used to reduce consumption of those harmful products. New research identified reasons these taxes remain low in Nepal, a lower-income nation with high rates of smoking and alcohol consumption.
Industry misinformation and ambiguous tax regulations pose substantial barriers to the implementation of higher taxes on tobacco and alcohol in Nepal,” said Yubraj Acharya, associate professor of health policy and administration at Penn State and lead author of the study, as per Medical Express reporting.
But the nation has implemented other significant reforms in recent years, and, with sufficient political will, raising these taxes is very possible.”Yubraj Acharya, associate professor, health policy and administration, Penn State and lead author of the study
This study is 1 of 8 funded by the World Health Organization, Medical Express reports, to understand barriers to higher taxes on tobacco, alcohol and sugary beverages in lower-and middle-income nations. The WHO recommends a tax rate of at least 75% of the retail price on tobacco products, but in Nepal the tobacco tax is 15.5%. Alcohol taxes in Nepal vary based on the type of beverage sold, but those taxes also lower than many other nearby nations.
Acharya and a team of Nepalese researchers conducted in-depth interviews about alcohol and tobacco taxes with 45 stakeholders from all of Nepal’s seven provinces, according to Medical Express. To get a broad cross section of perspectives, the researchers interviewed government officials, alcohol producers, distributors, and retailers of alcohol and tobacco, consumers, and civil society.
During the interviews, Acharya said, representatives of the tobacco and alcohol industries argued that higher taxes would be unfair or impractical, as per Medical Express. They claimed, among other things, that higher taxes would encourage cross-border smuggling and that consumers with lower incomes would switch to poorer quality products if taxes increased.
Tax rates are much higher and regulations stricter in India, according to Acharya. With higher taxes in Nepal, cross-border sales of these products would be expected to fall, not increase. He also said that if people switched products, taxes on the poorer quality products could be raised further if needed, according to Medical Express reporting.
While industry representatives also claimed that taxes would do nothing to limit consumption, one government official claimed that higher taxes would destroy the tobacco and alcohol industries, creating “economic chaos.” Acharya said none of these arguments are backed by evidence, according to Medical Express.
There is strong evidence that higher taxes lead to lower consumption,” Acharya said, as per Medical Express reporting.
The claims that higher prices would hurt poor people are counter to what the evidence has shown in Mexico, Colombia, the Philippines and other countries. Around the world, the purveyors of harmful products use similar misinformation strategies to undermine efforts to regulate or reduce consumption of their products.”Yubraj Acharya, associate professor, health policy and administration, Penn State and lead author of the study
Most concerning to the researchers, according to Acharya, was the realization that many Nepalese government officials were repeating the claims of the tobacco and alcohol industries. The researchers attributed this to the economic might of these companies.
Based on the interviews, Acharya said he believes that earmarking a fixed percentage of the revenue from health taxes to prevent health problems associated with tobacco and alcohol would increase transparency and buy-in.
Health taxes to prevent and reduce health harm (in Nepal)
Ultimately, the goal of this research is to prevent and reduce diseases like lung cancer, liver disease, kidney disease, and other NCDs that are driven by alcohol and tobacco.
In Nepal, more than 19% of deaths were smoking-related in 2020, up from 10% of deaths in 2010, according to the WHO.
On one hand, this research reflects a reality everywhere,” Acharya said, as per Medical Express.
Alcohol and tobacco cause health problems around the world, and misinformation is a common barrier to developing effective health policy. But every nation really is different; local context and local culture matter. We believe that this study and similar WHO-funded studies in other lower- and middle-income countries can build the knowledge base needed to combat misinformation and improve health.”Yubraj Acharya, associate professor, health policy and administration, Penn State and lead author of the study
What is already known on the subject?
- Health taxes have the potential to reduce the consumption of alcohol and tobacco products and help curb non-communicable diseases.
- In Nepal, health taxes are below WHO-recommended rates and among the lowest in South Asia.
What is the added value of this study?
- This study is among the first efforts to document the perceptions of key stakeholders on the use of taxes on alcohol and tobacco products in Nepal.
- Support for higher taxes on alcohol and tobacco products is limited, with evidence of industries employing various tactics to prevent tax increase and to sustain public support.
How this study might affect, research, policy, and practice?
- The study’s findings present advocates with several areas for action, in particular the need to publicise industries’ effort to undermine taxes and to general local evidence on economic effects of health taxes.
Respondents were asked what the government should do to be able to raise taxes on alcohol and tobacco products and make health taxes a more effective tool for curbing NCDs. A number of insights emerged, which warrant further research and analysis.
One federal government official emphasised that politicians and bureaucrats need to be secretive about potential increases in health taxes during the preparation of the annual budget (when tax rates are determined). The official said that ‘If the plans to raise health taxes are known beforehand, industries attempt to derail the efforts or hoard the products illegally to create artificial shortages’. ‘While making the budget, we need to maintain certain secrecy.’
Respondents provided several suggestions on the current earmarking of health taxes for NCDs. One local government official asked for greater transparency from the federal government. As they put it, ‘The government currently allocates 400 million rupees [US$308,000] annually for NCD-related programmes, but on what basis? The figure should be transparent so consumers also feel ownership of the taxes.’ Several local officials and consumers suggested that the amount allocated to NCDs should be a fixed percentage of the revenue raised through health taxes – thus adjusted each year – and not a flat amount. That would enable consumers to see that a proportion of their taxes is being spent for their benefit, thus raising ownership of the taxes.
Several respondents pointed to the need to strengthen the enforcement of existing laws on alcohol and tobacco products. However, many of the suggestions the respondents provided on curbing NCDs related to non-tax interventions. Respondents were convinced that one of the factors driving the consumption of alcohol and tobacco products is the availability of these products. Suggestions on reducing access ranged from ‘setting specific time and place for purchase and consumption’ to ‘limiting the number of stores that can sell these products’, such as allowing only ‘5 authorised shops in one ward’. Other suggestions included stricter screening of consumers for ‘age and pregnancy, restricting consumption in public spaces, and counselling and awareness programmes, including those targeted to individuals with addiction to [alcohol use] and smoking.’
Industries are not supportive of higher taxes on alcohol and tobacco products and the close link between politicians and these industries may be a significant barrier to the adoption of higher health taxes. Industry representatives expressed a myriad of concerns, many of which are either false or can be easily refuted using evidence from other countries.
Some claims, such as the potential rise in illicit trade from India, seem ill informed as prices are currently lower than in India; if anything, if prices increase in Nepal due to higher taxes, illicit trade should fall.
Strikingly, many government officials shared concerns similar to those of industry representatives.
Stakeholders of all types pointed to the generally weak capacity of the government as another barrier to an effective adoption of higher health taxes. Regarding the role of health taxes to curb NCDs, most respondents argued that health taxes alone would be insufficient to reduce the consumption of harmful products and that additional complementary initiatives, such as smoking cessation programmes, would be needed.
The study’s findings present advocates with several opportunities.
There exists a need to dispel misperceptions – many of them pushed by industries – that higher health taxes can be detrimental to the economy. Empirically, in many countries, reductions in tax revenue from decreased consumption have been found to be more than offset by the rise in revenue from those who continue to use these products, leading to an overall increase in revenue in response to tax.
Higher taxes on tobacco have been found to have no net loss on jobs; they have been found to lead to modest job gains instead. This has been found to be true for alcohol as well.
The gains of health benefits following health taxes tend to be progressive.
For example, long-term medical costs have declined in Chile and Moldova following tax increases on tobacco products.
Similar evidence from Nepal on health taxes’ potential economic effects will be needed to counter the industries’ arguments.
Concurrently, the media, the civil society, and the public can help by publicising the efforts of the political lobby to undermine taxes, including industries’ efforts to influence the public in the pretext of corporate social responsibility.
Relatedly, separate guidelines on mobilising health taxes are needed. These guidelines can clarify the breadth of items covered by health taxes, the roles and responsibilities of the three layers of the government, as well as how the revenue collected is to be used.
Respondents suggested that the amount allocated to NCD efforts needs to be adjusted each year based on the revenues from health taxes that year and should be allocated to NCD prevention efforts. The need for greater transparency will need to be balanced with practicality, however. Currently, health taxes are collected as excise fees, health risk tax, or VAT. Separating the three, and parsing out the amount of revenues collected from different products, may be administratively costly. Nonetheless, as previous studies have pointed out, Nepal’s basis for taxation is confusing and can be simplified – for example, cigarettes are taxed based on their length rather than the number of packets produced which makes tax assessment difficult and avoidance easier.
In terms of allocations of revenues from health taxes to specific activities, there are a number of effective efforts from other countries that can be replicated.
For example, Turkey has earmarked some of its tobacco tax revenues to help tobacco farmers shift to other crops. Youth smoking prevention and cessation programmes and Alcohol Anonymous-type efforts are some other examples of prevention programmes health tax revenues can finance.
As a general recommendation, stress plays an important role in triggering the consumption of harmful products, as respondents in this study pointed out. Therefore, for health taxes to be effective in reducing consumption of harmful products and addressing the rising incidence of NCDs, the taxes need to be complemented with counselling programmes targeted to vulnerable groups (which again can be financed through health taxes), stricter enforcement of current ban in consumption in certain places, and additional education programmes on the risks of consumption targeted to youth in particular. Likewise, taxing all tobacco and alcohol products equally can reduce the possibility of individuals switching to lower-quality and potentially more harmful products.
More generally, advocates of higher health taxes, such as the WHO, should continue to identify and support champions within the government and among the bureaucrats so they can be more vocal in exposing and countering industries’ conduct.
Alcohol and tobacco industries working aggressively to prevent future policies using their resource advantage, including by presenting misleading economic arguments, is not new or unique to Nepal. However, with a strong overt support from the highest political leadership, significant reforms have been possible in other countries, such as the tobacco excise tax reform in the Philippines. Nepal’s own experience in other areas suggests that substantial reforms are possible if there is political will, even amidst controversies and seemingly challenging capacity constraints.
Several challenges exist in Nepal’s adoption of higher health taxes to curb NCDs. Chief among these challenges are lobbying by the industries against raising taxes and the government’s generally weak capacity on tax administration. Efforts to dispel misconceptions about the effect of higher taxes on the economy are needed. To increase public support for higher taxes, health taxes earmarked for NCDs need to reflect the amount of revenue raised, reoriented towards NCD prevention efforts and communicated clearly to the public.
Non-communicable diseases (NCDs) are on the rise in Nepal. Consumption of alcohol and tobacco products remains high. Taxes on these products are significantly below the rate recommended by the WHO. In an effort to understand the reasons behind the slow progress towards the adoption of higher health taxes to curb NCDs, the researchers documented the perceptions of key stakeholders on health taxes, including perceived barriers and facilitators to adopting higher health taxes.
The researchers conducted 45 in-depth interviews with individuals comprising government officials; producers, wholesale distributors and sellers of alcohol and tobacco products; and consumers and representatives from civil society organisations. The researchers then conducted a thematic analysis of the resulting data.
Respondents from alcohol and tobacco industries are not supportive of higher health taxes. They argued that higher taxes can increase illicit trade and worsen inequality. Strikingly, several government officials shared the industries’ concerns, arguing that health taxes have limited potential to reduce consumption of alcohol and tobacco products to help curb NCDs.
In terms of barriers to adoption of higher health taxes, several local government representatives opined that close ties between industries and politicians at the federal level is a major hindrance.
In order to adopt higher health taxes, the government will need to counter the false narrative pushed by alcohol and tobacco industries on the negative economic effects of such taxes. Health taxes earmarked for NCDs need to reflect the amount of revenue raised, reoriented towards prevention efforts and communicated clearly to the public.
Medical Express: “Understanding the barriers to taxing alcohol and tobacco in Nepal“