Sunday, August 7, 2016

THE FAT TAX DEBATE

The recent announcement of imposition of a “Fat Tax” in the Kerala budget has generated a lot of discussions around the country. The proposed tax seeks to tax burgers, pizzas and other processed foods at 14.5%. It also seeks to tax food served by major fast food brands.

Obesity has emerged as a global problem in the world today. According to a study published by acclaimed medical journal Lancet in 2014 India has the third largest number of obese people in the world. According to the study India is home to 30 million obese people. If the current trends continue, this number will skyrocket to 75 million by 2025. Childhood obesity tracks into adulthood, and is an important risk factor for the development later in life of type 2 diabetes mellitus, metabolic syndrome, among others. This has to do with unhealthy food, sedentary lifestyles and loss of traditional knowledge. In such a situation it is indeed laudable that Kerala has taken an initiative to tackle the problem.

The concept of Fat Tax is not new. A fat tax is an example of a Pigovian tax which seeks to impose a restriction on the unhealthy food regime that has emerged in the world. Japan was the first country in the world to impose the “metabo law”. This law which included measurement of waist sizes was sought as a tool to fight rising obesity numbers in Japan. Similarly in 2011 Denmark introduced a fat tax on certain products as a tool against rising obesity and lifestyle diseases. However after a fifteen month stint it was taken off because the law had failed to take off and the government admitted to people buying food from across the border.

Understandably the introduction of such a tax has lead to discussions whether the tax would serve any purpose. One of the first points of discussion has been with regard the financial rationale behind this taxation. This tax would add almost ten crores into the coffers of the Kerala government. Those who do not favour the tax argue that ten crores hardly make a difference into a budget that runs into thousands of crores. Industry insiders argue that such a tax will not signal a shift in consumption pattern but will only add to the burden of the customers. Moreover Kerala does not have large number of fast food chains compared to the other major southern states for this tax to make any major impact. In summation critics argue that this will only mean rising cost for the consumer.

Another major argument relates to the fact that fat tax on pizzas and burgers is essentially a non starter because such “Western” food constitutes a small part of the larger Indian dietary pattern. Indians have long been a haven of spices and oil with samosas , pakodas and other fried items almost inevitable in Indian menu. Kerala has its own share of fried items in form of the famous banana chips and beef fry. Each of this item carry huge threat potential to the health of the population .And thus imposition of tax on pizzas and burgers do not make sense.

Others argue that the Denmark failed experiment must be a lesson for those who seek to tax fast food. The failure of the government of Denmark to wind down the schemes within 15 months citing administrative burdens is a sign that such schemes are marked to fail.

However each of these myths must be addressed logically. The rationale behind this taxation is not so much as to earn taxes as to create awareness about the existence of health hazard. It is true that the Indian dietary menu consists of large share of unhealthy items however what can’t be denied is that products like pizzas and burgers have made rapid inroads into Indian markets and are soon poised to take over from traditional Indian foods. A recent judgment of the Delhi High Court in 2015 is noteworthy in this regard. The judgment delivered in 2015 sought to ban sale of junk food in school vicinity. It also sought to control and regulate the advertisements of such products in schools. This undoubtedly shows that policymakers recognise the obesity issue and awareness is the first step towards combating it. This tax would not so much as fill the government coffers as it would create awareness about healthy food items. In the long run such awareness will also spread over to traditional Indian unhealthy snacks. Hence such a tax should not be opposed merely because it targets only a particular category of items.

While the Denmark experiment has been a failure in some measure there are experiments around the world in different forms which have shown such schemes are successful. For example a “soft drink” tax imposed by Mexico in 2014 of one peso per litre resulted in the dropping of soft drink sales by 2%. It also added about 2 billion dollars in the government coffers, almost a third more than what the government had anticipated. While sales have picked up again since then, yet the rate of sales are nowhere near the pre taxation levels. On the other hand there have been successful experiments in Hungary, Finland and France of taxing one junk food item or another. In summation it can be concluded that governments worldwide are waking up to the reality of obesity and unhealthy lifestyle.

The most important component to this debate however is the threat to the poor. As any poor economist would tell us the poor are vulnerable to false impressions of a better lifestyle, because it signals aspiration. Burgers, pizzas and cold drinks are seen as symbols of a beter lifestyle. This is why perhaps there are stories of McDonalds employees mistreating street children who are later fed by benevolent customers. The fact that such street children hang around fast food chains is a testimony to the vivid imagery that these chains project. And it is this image to which the poor are most vulnerable. In a country like India which is confronting the poverty challenge boldly, providing a better food basket is an important part of that challenge. And it is towards this that the projection of fast food has to change from being a symbol of growth to one that is fraught with its dangers.


As we move into a global order, food habits and dietary charts will undoubtedly change. For example the consumption of pulses have rapidly fallen in India .Yet it is important to keep reinventing the basket so that at any point it offers a healthy modicum of choices for the consumer. And it is towards this change of perception that the fat tax should be seen. It is not a tool to earn revenue or rapidly shift the consumer consumption pattern. It must be seen as a indicator that seeks to check and balance our dietary behaviour should it reach dangerous levels.


(http://thediplomat.com/2016/08/indias-fat-tax-debate/)