Kerala Fat Tax

In a landmark policy decision the newly elected LDF Government in Kerala imposed Fat Tax on the sale of certain fast foods. The tax which is introduced for the first time in India is proposed to impose 14.5% surcharge on branded restaurants selling food like pizzas, burgers, tacos, doughnuts, sandwiches, pasta, burger patty and bread-filling. The tax is likely to affect fast-food chains like McDonalds, Dominos, Pizza Hut, Subway among others.

Even the state government has made consumption of ready-to-eat chapatis dearer with the introduction of 5% tax on packaged wheat products along with 5% on packaged basmati rice and coconut oil a whopping 20% tax on Disposable glasses made out of plastic.

All these tax propositions would generate good revenue to enable the government of the state to utilize it in constructive welfare measures like health and housing.

What Is Fat Tax?

As the name suggests Fat tax – originally a taxation that meant to reduce obesity in the developed country like the USA- is a tax imposed on fattening food, beverages, alcohol or on overweight individuals. Modelled upon Pigovian taxation, a fat tax aims to discourage unhealthy diets and offset the economic costs of obesity. It is all set to target those foods which have the potential to create serious chronic diseases like obesity and coronary heart disease. Fat Tax is conceived on the basis of the idea that the price of a food decreases, individuals get fatter.

Before imposing fat tax extreme care is taken by the policy makers to check which food items are to be taxed, because a carelessly chosen food tax can have startling and perverse effects.

The Merits of Fat Tax

The proponents of the taxation claim that fat tax reduces expenditure on diseases and certain food items among the poor. Health practitioners, nutritionists and scholars have already suggested a fat tax on unhealthy foods. The chief rationale behind the proposition of fat tax is to rein in risky dietary behaviours among the citizens. Junk food outlets have been instrumental in changing the food habit of society and indirectly contribute to the spread of aforesaid diseases. The Fat tax has two-pronged benefits:

First, it is likely to fill the state treasury with big sums and second, it has a broader social objective in vanishing obesity and other fast-food-generated diseases like diabetes and cardiovascular arrest in the consumers.

Consequence of growing Obesity

The growing obesity rate has led to high cholesterol, and an increase in chronic diseases such as hypertension, diabetes and cancer. The goal of the fat tax is to curb sales of unhealthy food and decrease overconsumption, which will drive away disease.

Demerits

The opponents of fat tax claim that fat tax would affect the food habits of the poor who spend most of their income on food. However, fat tax is usually imposed on those foods which have more harm to the society, for example, fast food. The claim that Fat Tax would prove regressive to the poor and needy is not tenable.

Reach of Fat Tax

Obesity and cardiac problems are common diseases mostly in the developed countries like the USA and many of Europe. Countries like France and Finland have already imposed similar taxation provisions in their countries. ‘Metabo’ in Japan was in the form of a fat tax that intended to check obesity and diabetes and other lifestyle diseases among citizens. The ‘metabo’ law involved conducting an annual waist measurement check of people aged between 40 and 75, which was administered by employers and local government. The goal of the law was to reduce Japan’s obesity by 25% by 2015. Some countries including the UK and France have imposed sugar taxes on a variety of sugar products like chocolate, fizzy drinks and confectionery.

Pigovian Tax?  

Pigovian taxes were named after English economist Arthur C. Pigou. He had seminal contribution towards early externality theory in economics. It is based upon the sole premise of checking negative and harmful consequences of the consumption of certain luxury and food items on the health of both human being and environment.

What is Externality in Economics?

Externality refers to such economic activities wherein the production or consumption of goods causes either positive or negative impacts to the section of people who are not directly related to such activity. Factories releasing pollutants and polluting the environment affect people who are not part of their production and consumption. It is loss or gain that affects those who are not part of such activity. British economist A.C. Pigou had pioneering contribution to the development of the theory of externalities.

The Relevance of the Fat Tax

The inherent goal behind implementation of Fat Tax is undoubtedly to build a healthy society. This taxation measure is now growingly considered by many countries in the world to attain the two-pronged objectives. Apart from revenue generation the tax has educative value for the citizens of a country; especially the young who are more attracted to fast foods and suffer from the harmful effects of it. The revenue generated from the Fat Tax can be spent to subsidize the sale of healthy foods to promote health and hygiene of the society at large.

Worldwide concern over the increase in the number of diabetics and cardiac patients can be mitigated if taxation measures like fat tax are implemented in letter and spirit. It will also be a profound contribution towards the posterity.