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Sin taxes: plenty of evidence, but an ambivalent public?

By Swati Srivastava
on April 21, 2016

Early last month, South Africa became a new entrant to the list of countries proposing use of the none-too-wisely-named ‘sin tax’ to deter consumption of demerit (socially undesirable or unhealthy) goods. The government recommended implementation of a drastic increase on sugar-sweetened beverages, as South Africans consume almost double the recommended daily doses of sugar, predominantly in the form of carbonated drinks. With 1 in 4 South Africans being obese and high cardiovascular and type 2 diabetes rates, some type of drastic intervention seems warranted. Sin taxes are used to i) influence desired consumer behaviour, and ii) collect additional resources for governments (not necessarily in that order). Critics of such taxes argue that not only do these taxes burden the poor, but they also infringe upon consumer sovereignty, and that users are well aware of the consequences (both good and bad) of the choices they make.

There are many examples from tobacco, alcohol and gambling control that demonstrate the success of sin taxes (though Texas made a disastrous attempt at taxing stripper clubs in 2008, the so-called ‘pole tax’, a move followed by 12 more American states with variable success). In Mexico, the introduction of a one peso tax (approximately 10% increase) on soda drinks in 2014 has led to reductions between 6-12% in consumption. Nearly 30 countries use taxes from tobacco to finance health spending. The Philippines has been able to finance health insurance for 14 million elderly, informal workers and urban poor under the Philippine Health Insurance Corporation (PhilHealth), financed largely from taxes from tobacco. India uses contributions from tobacco taxes to fund welfare activities for tobacco workers and the National Health Mission.

Modelling exercises also show that taxes on demerit goods can lead to substantial health gains, and not only fill government coffers. One study found that in 89 LMICs, a $10 per-capita increase in tax revenue led to an additional $1 spent on public health. In France, progressive tax increases on tobacco since the 1990s have been associated with a 50% reduction in lung cancer rates. Another study on 181 countries suggests that a $1 increase in the price of a pack of cigarettes globally can avert 15 million smoking-attributable deaths. Studies from Australia, Ecuador, India, and the United States also suggest significant health gains from sin taxes. Conversely, studies have shown that lowering taxes on tobacco and alcohol can be detrimental – the 2004 lowering of alcohol excise in Finland has been estimated to cause an additional 8 alcohol-positive deaths per week.

Having said that, in a country like Finland, you probably need some strong liquor to get you through the winter days. So maybe there’s a case to be made for “summer-only” alcohol taxes in Scandinavia (or Russia, for that matter)? Along the same lines, temporary ‘sugar tax’ exemptions might be warranted when your boyfriend/girlfriend just dumped you, and ‘for one night only’ tobacco tax exemptions when you just made love like in an Alain Delon movie (and crave for a cigarette). Call it ‘context-specific’ taxing. Should be easy to implement in an era with less and less privacy.

Anyway. In the wake of evidence from all parts of the world on the potential of sin taxes to simultaneously contribute to the state exchequer as well as bring about reductions in disease burden, what is it about them that incites such strong responses? Although the term ‘sin tax’ is perhaps not a very smart choice – except for the US, a country full of sinners (self-proclaimed and otherwise) – I don’t think the term itself is the key explanation for the backlash. In my view, it is that people don’t like being told what to do, even when it is in their best interests. So whether you call it a soda tax, sugar tax, sin tax or whatever, people cherish the idea (it’s mostly a dream, actually) of having autonomy, of being “free”. Even more so when they don’t exactly know the use their extra contributions will be put to. Which brings up another much vilified word for governments – earmarking. Unless people know why taxes are being raised and how their money will be used to benefit them, public opinion will continue to be swayed by influences from big industry about nanny states and government paternalism. The fact that high-net-worth individuals and multinationals don’t seem to pay much tax altogether, doesn’t help much either. It feels like governments are going after the ‘easy’ money, i.e. of ordinary citizens. Only the average Joe is a “sinner” for our governments, tax-optimisers/dodgers tend to be ‘innovative entrepreneurs’, ‘winners’ and/or ‘creative disruptors’ – i.e. the heroes of our times.

A final comment. Sometimes there are no choices – people are forced to choose among equally bad alternatives, where the lowest priced, affordable options provide an appalling point of access that no amount of increasing tax can ameliorate. For example, if $1 will only get a large bag of chips, and not the delicious plate of curried vegetables that one had imagined. It is this aspect that has to be tackled alongside tax increases, for people to warm up to the idea of sin taxes.

After all, hell is supposedly full of sinners. And that’s a pretty warm place, from what I’ve been told.




(Kristof Decoster provided some feedback on an earlier draft by Swati)

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