Sugar Tax – Breaking Bad, India’s Obesity Epidemic

“Discussing the Role of a Sugar tax as an Appropriate Policy to tackle the obesity epidemic in India ”

Introduction – How serious of an issue is Obesity?

The National Institute of Health’s (NIH), report of 2018 states that 300,000 people die every year due to the obesity epidemic.^[1] Excessive sugar consumption is primarily responsible for over 35% of the obesity case with people aged between 20 and 29. But before that, we need to understand the role of the sugar tax which is essentially a form of government intervention in a free market. The Sugar tax or the Sin Tax is aimed at reducing the level of obesity in the citizens of a country.

What is Obesity?

The WHO defines obesity as “having a BMI greater than or equal to 25 is overweight. a BMI greater than or equal to 30 is “obesity”. (WHO, Public Health Report of 2020)^[2]

How does the proposed Sugar Tax work in India?

Often dubbed the “diabetes capital of the world”, India announced its intent to reduce the consumption of sugary drinks by placing them in the highest goods and services tax bracket of 28 % in July, 2017.^[3] The primary objective of this article is to discuss the effectiveness of the proposed sugar tax in India and analyze if the tax would function equitably between all the sections of the society while simultaneously combating the obesity pandemic.

Understanding Obesity in India

Data from the Union Ministry of Health and Family Welfare has consistently proven the relation between the prevalence of obesity with the increase in the consumption of sugary drinks which has increased rapidly in recent decades. The widespread prevalence of overweight and obesity will reach 30.5% among Indian men, and 27.4% among women, respectively, by 2040.The largest relative increase in overweight and obesity prevalence was forecast to occur at older age groups.

What is Sugar Tax?

The sugar tax for all intents and purposes is an indirect tax structure that would serve as a price mechanism to influence consumer behavior at the point of purchase. The government is thus directly incentivizing a healthy choice and disincentivizing an unhealthy choice. This is a form of fiscal intervention to combat the negative effect arising from the failure to regulate the negative market externalities. However, we need to understand that no single activity is sufficient on its own to combat such a large-scale issue. Targeted taxation is just one of the many steps that would help in making a difference in the long run. Global patterns in price elasticities of sugar-sweetened beverage intake and potential effectiveness of a tax policy such as a sugar tax.

When we consider the price of a sugary drink, we often tend to ignore the external costs. External costs (also known as externalities) refer to the economic concept of uncompensated social or environmental effects. For example, when people buy fuel for a car, they pay for the production of that fuel (an internal cost), but not for the costs of burning that fuel, such as air pollution. This is primarily caused due to various reasons. One of them is information failure or the lack of on the part of the Multinational Corporations (MNC’s). Lack of awareness on the consumer’s behalf is another reason as to why we normally tend to ignore the long-term negative externalities caused by various commodities. Thus, the imposition of a sugar tax might force people to reconsider their choices. The sugar tax would leave a clear message to the people that they could potentially be harming their own health and hurting their wallets if they choose to spend on sugar-based products.

Now that we have gained a basic understanding of the nature and scope of the sugar tax It is important that we gain a critical understanding of the pros and the cons of introducing a sugar tax in India.

Arguments in favor of the imposition of a sugar tax :

1) Sends out a clear message to the public: The imposition of the sugar tax would leave a clear message to the people that they could potentially be harming their own health and hurting their wallets if they choose to spend on sugar-based products.

2) Substantial Increase in Revenue: Officially introduced in the tax puts a charge of 40% on all sugary sodas. It is estimated that India would be able to collect up to over $128 billion per annum.

Another interesting factor to be noted here is how the Indian Government could spend the revenue collected from the sugar tax. The revenue collected from the sugar tax levied is being invested in school sports, breakfast clubs, and various Ayushman Bharat health initiatives. This could help our country on multiple fronts and could certainly make a long term impact on developing various sectors of the Indian economy.

3) External costs: Sugary drinks impose high external costs on society. The overconsumption of sugar is a major cause of health problems such as:

a) Diabetes (in particular, type 2 diabetes)b) Obesity and obesity-related illnesses, such as back pain, heart disease,

c) Tooth decay (especially amongst young people.

d) These external costs are reflected in higher costs imposed on the national health service. Poor health also adversely affects work and productivity. Therefore, the social cost of sugar consumption is greater than the private cost of sugar.

Arguments against the sugar tax :

1) Regressive in nature: A sugar tax is regressive in nature as it affects lower-income families who will have less income to spend on nutritious food.

2) Possible overdependence: A sugar tax is one of the measures that could possibly be taken to reduce the consumption of sugar. However, it should be considered a part of a comprehensive policy with a broader objective to eradicate obesity in the country and not a one-off measure.

3) Gaping flaws in the proposed law: Under the existing laws, not all the sugary drinks are taxed, so people could easily switch to other sugary products to get their “sugar-fix”. This needs to be solved through legislation to include all sugary drinks under the existing purview of the law.

4) Loss of jobs: There would be the obvious issue of the loss of thousands of jobs in pubs and shows that are dependent on the sale of sugary drinks.

Understanding the Price Elasticity of Sugary Drinks :

According to a report by the Baystate Medical Center (BMC), the price elasticity of sugary drinks is -1.37%. This implies that a price increase of 10% is associated with a reduction in consumption of 13.7%. According to the study of the BMC, plain water showed a cross-price elasticity of 0.63: a 10% increase in the price of soft drinks could lead to an increase of 6.3% of plain water. Own and cross-price elasticities were observed to be similar between models.^[4] (Carlos M. Guerrero-López).

Since the coefficient of the price elasticity of sugary drinks is less than 1, in theory, it is possible for the firms to pass most of the indirect tax to the consumer as should be in the case of the sugar tax. However, the present sugar law of the UK lets the companies make that choice. Though many companies have simply passed on the tax to the end consumer. Several companies have made a conscious effort to reduce the sugar content of their product. In India however, the companies should not be allowed to pass on the taxes to the customers as it would be further regressive in nature and moreover it would not serve its primary objective of protecting the health interests of our country.

Conclusion :

A sugar tax is a necessary evil to protect the interests of the people of a country. It is the first step on the path to combat obesity. We need to acknowledge the need for more detailed policies to achieve our final objective. We need to expand the scope of our public policy into other areas like taxing unhealthy snacks, creating awareness amongst the people regarding obesity, and work on building up the public infrastructure to encourage sports and activities in the youth of our country. Apart from the above-mentioned changes, it is important to consider including all the sugary drinks within the purview of all the existing laws. The companies should not be allowed to transfer the indirect taxes onto the people irrespective of the price elasticity of sugary drinks. Other food items like chips and sodas should be bought under the purview of the sugar law of 2018 would help improve the obesity condition in the long run.

I would like to recall the words of John Adams who said, “Government is instituted for the common good; for the protection, safety, prosperity, and happiness of the people; and not for profit, honor, or private interest of any one man, family, or class of men; therefore, the people alone have an incontestable, unalienable, and indefeasible right to institute government; and to reform, alter, or totally change the same, when their protection, safety, prosperity, and happiness require it.” It is the responsibility of the government to hold up the interests of its citizens when they fail to see the long term consequences of their own actions and endanger themselves time and again.

By Srijan Vasireddy
Senior Secondary Student, Christ Junior College (CJC), Bengaluru, Karnataka

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