In many low- and middle- income countries, high and growing consumption of unhealthy products- which contribute to non-communicable diseases including obesity – take a large toll, and have dire implications for both human capital outcomes and economic productivity.
More than 11.4 million premature deaths annually – or 20 percent of all global deaths– could be prevented by reducing consumption of tobacco, alcohol and sugar sweetened beverages (SSBs).
Further, economic pressures including higher food, fertilizer and energy prices, rising interest rates, and growth slowdown add up to a difficult fiscal equation for many developing countries. While almost all countries increased overall government as well as health spending in the last few years, only a few of them—mostly high-income countries— can sustain these levels in the years ahead. Improving domestic resource mobilization, especially in a way that can broaden tax bases in a sustainable manner, will be central.
Why health taxes?
Health taxes are excise taxes imposed on products that negatively impact public health (e.g., taxes on tobacco, alcohol, SSBs). Because excise taxes can be used to target specific goods and services, they differ from other types of indirect taxes such as VAT or GST. In this sense, they are discriminatory: their special nature can be used to tax products that cause health related harms and generate negative externalities- harm to society; and negative internalities- harm to oneself.
As a policy tool, excise taxes are one of the most cost-effective ways to tackle consumption of these products: higher rates can lead to higher prices, and reduce affordability- curbing use and raising revenues, even in low capacity environments.
However, it is not just the tax rates that matter. Overall design of health taxes requires considering rates as well as the structure (i.e. ad valorem, mixed or specific) and base (i.e. value or volume, alcohol or sugar content). Further, the way that these taxes are implemented and enforced matters. Policy is only as good as the underlying tax and customs administration capacity that are in place to support collection. Developing efficient and effective tax administration ensures that the impact of health taxes is maximized and not undermined by tax avoidance and evasion, including illicit trade. Finally, the ecosystem in which health taxes evolves matter: Health taxes are part of larger tax systems, and recognizing this is critical to their success.
Our Work and Approach
Embedded in the Global Tax Program (GTP), the new Health Tax Workstream funded by the Government of Norway and Bloomberg Philanthropies bolsters the World Bank’s unique capacity to support countries in health tax reforms with a fiscal policy lens. From this vantage point, the program leverages World Bank expertise on taxation, close linkages with country economists, as well as multi-sectoral partners from outside and within the World Bank who are well positioned to support work at country and global levels.
Under the Health Tax Workstream, the majority of resources go to supporting country engagements across varying entry points, and with a focus on supporting core World Bank diagnostics such as Public Expenditure Reviews. This support seeks to connect with the broader tax reform dialogue at country level to ensure coherence. World Bank experts also thoughtfully synthesize lessons from these engagements and respond to other needs of countries that emerge on a demand driven basis to produce and disseminate learnings. Further, we leverage and participate in efforts with other partners in order to explore synergies and support strengthening the global knowledge base.
Last Updated: Sep 02, 2022