Health taxes are taxes imposed on unhealthy products (e.g. tobacco, alcohol, sugar-sweetened beverages). Consumption of these products is a major risk factor for multiple noncommunicable diseases (NCDs), including cardiovascular diseases, cancers, respiratory diseases, and diabetes. They represent negative externalities and socially undesirable consequences that are not reflected in their market price.
Health taxes contribute to reducing the consumption of these unhealthy products. Excise taxes, in particular, have the greatest potential, from a health perspective. Indeed, they allow policymakers to target and raise the price of selected products, making them relatively less affordable than other goods and services. Health taxes lead to a healthier population, a reduction of long-term health care costs, and potential long-term labor productivity gains. Additionally, they generate stable and predictable tax revenue.
They represent a tool to achieve the Sustainable Development Goals, as they can:
- significantly reduce the NCD burden (Goal 3)
- greatly benefit vulnerable populations which bear larger health burdens (Goals 1,5,10)
- boost economic development through a healthier workforce (Goal 8)
- Health taxes represent a “win-win-win" policy option for governments as they:
- Reduce the consumption of unhealthy products
- Generate additional immediate tax revenue
- Have the potential to reduce long-term health care costs and increase long-term labor productivity
- PAHO/WHO has endorsed the implementation of excise taxes on tobacco, alcohol, and sugar-sweetened beverages as part of the WHO Global Action Plan for the Prevention and Control of Noncommunicable Diseases 2013-2020.
- Based on WHO analysis, increasing excise taxes on tobacco and alcohol are considered “best buy” policy interventions (most cost-effective and feasible for implementation) to prevent NCDs.
- Taxing sugar-sweetened beverages is a cost-effective measure which can help reduce obesity, type 2 diabetes and tooth decay.
- Health taxes are progressive measures which benefit low-income populations relatively more, once reduced health care costs and health burden are considered.
- They result in healthier populations and generate revenues for public budgets even in the presence of illicit trade/evasion.
- The evidence shows non-significant effects or net positive effects on overall employment. Any related reductions in employment are likely to be offset by job gains in other sectors.
- In the Americas, NCDs cause approximately 5.5 million deaths per year (80.7% of all deaths). Of this total number of deaths from NCDs, 38.9% are premature deaths (<70 years old). NCDs impose high direct medical costs to households which can lead to catastrophic out-of-pocket health expenditures, as well as indirect costs such as loss of income, working time or productivity, reducing household welfare. Macroeconomic simulations suggest that the four main NCDs – cardiovascular diseases, chronic respiratory diseases, cancers, and diabetes – and mental health disorders could cost cumulative economic losses of USD 47 trillion globally (75% of 2010 global GDP) during the two decades 2010-2030 (Bloom et al., 2011).
- In the Americas, the prevalence of tobacco smoking is 16.9% among the population over 15 years old and tobacco use is responsible for an estimated 1 million deaths every year. Total global economic cost of smoking – from associated health expenditures and productivity losses – was estimated to be about USD 1.4 trillion in 2012, equivalent to 1.8% of the world’s annual global GDP (Goodchild et al., 2018). In Latin America, the direct medical cost associated with tobacco use exceeds 6.9% of health budgets, equivalent to 0.6% of GDP (Pichon-Riviere et al., 2020).
- Alcohol is responsible for 5.5% of all deaths in the Americas and 6.7% of all disability-adjusted life years (a measure of overall disease burden, expressed as the number of years lost due to ill-health, disability or early death). Regionally, 8.2% of the population over 15 years old has an alcohol use disorder (5.1% for women, the highest prevalence compared to other WHO regions).
- In 2016, an estimated 62.5% of adults in the Americas were overweight or obese (the highest prevalence compared to other WHO regions). In 2012, approximately 62 million people were living with type 2 diabetes in the Americas. In addition, daily consumption of sugar-sweetened beverages is the highest in the world in the Region, with up to 1.9 daily 8-oz serving per adult in the Caribbean compared to 0.5 globally (Singh et al., 2015).
- Increasing excise taxes on tobacco products, alcoholic beverages and sugar-sweetened beverage is one of the most cost-effective policies to reduce their consumption and to prevent associated NCDs.
- The scientific evidence indicates that people with NCDs are at higher risk for serious complications if they get COVID-19. Excise taxes contribute to prevent NCDs reducing the consumption of unhealthy products (tobacco, alcohol, and sugar-sweetened beverages). Excise taxes could be used as an additional and immediate source of tax revenue to respond to the COVID-19 pandemic and to finance economic recovery plans. The additional tax revenue can participate in increasing the budget for public health towards achieving universal health coverage.
PAHO supports health authorities in bringing economic reasoning into their dialogue with other sectors, both in building bridges between public health and non-health sectors to advance for whole-of-government action on NCD prevention and in providing economic arguments to reach fiscal and health policy coherence on excise taxes on tobacco, alcohol, and sugar-sweetened beverages.
PAHO provides capacity building activities to health and finance officials and generate and disseminate regional- and country-level evidence on the use of health taxes and their economic impact.