Diseases such as diabetes, hypertension, cardiovascular diseases, liver dysfunctions and obesity have evolved to be a part of our lifestyle, making it a priority for the government to come up with a radical solution. It has indeed caused a revolution, but the effect it has had on our lifestyle is still up for debate. Yes, we are looking at the junk food tax in India, even though it has covered just a small line along the southeastern border of the India. At present, Kerala is the only state to implement junk food tax, though the current rulers haven’t shown any lack of enthusiasm to make it a countrywide policy.

The history of the idea of a fat tax traces back to the period during the Second World War when U.S. physiologist A. J. Carlson suggested levying a tax on each pound of “overweight”. This was not intended simply to curb an ‘injurious luxury’, as he termed it, but also to save food for war supplies. However, this suggestion was officially brought forth into the limelight when Kelly. O. Brownell, director of the Rudd Centre for Food Policy and Obesity put forth his idea in the frame of a fiscal policy, for the implementation of a fat tax. The revenue generated was to be used for the effective subsidization of healthy, nutrient rich foods and health awareness campaigns. The proposal by Brownell was tremendously popular, making its way to the seventh spot on the list of U.S. News and World Report’s ‘16 Smart Ideas to Fix the World’.

 

 

Researchers in 1994 displayed a disequilibrium scenario wherein unhealthy food was cheaper and thus more affordable to people whereas healthy nourishments were more expensive. The New York Times opined that the junk food tax proposition could provide a solution to the equilibrium problem. Thus in theory, Brownell’s model encouraged the consumption of healthier food.

 

THE  YARDSTICK: ELASTICITIES

The central points of concern here are – price elasticity and cross elasticity of demand. Price elasticity measures the change in demand to the change in the product’s price. The demand for these products show an inverse relation with respect to price, which helps explains the prospects of the junk food tax. When there is a tax imposed on certain food items, the immediate effect visualized is a price rise. Down the series, a fall in demand is to be expected. This is how the fat tax works, explained in the simplest way possible. If you think that makes it sound and safe for the policy, then you’re not looking close enough. A key point to consider is cross elasticity of demand, which measures the change in demand of the good due to the change in price of another good.

 

Joey definitely hates it

The degree of extensiveness or reach of the tax is an important factor. When prices of taxable junk food rise, people may opt for cheaper junk food (from the unorganized sector) that is exempted from taxes rather than switching to healthier alternatives as envisioned. Unless the tax ensures that no junk food item is exempt from taxes, there is a very real possibility that the policy will fail to alter the unhealthy consumption pattern of individuals. However, cross elasticity takes into account factors such as personal preferences, purchasing power and interdependence on other food items that may not be easily quantifiable. As such, it is hard to predict whether taxes on junk food will lead people to make healthier choices.

 

THE HIT – DANISH FAT TAX

The imposition of a fat tax in Denmark in 2011 was intended to cause a decline in the consumption of saturated fat and sweetened drinks so as to abate obesity and other lifestyle diseases. However, its drawbacks have been well-documented.

Inflation hiked up to 4.7% with prices soaring not just in the food markets but in the basic consumer goods market as well. This resulted in a decline in real wages by 0.8%. A good ten per cent share of the revenue had a new utility – administrative costs. Since the taxed food items were cheaper in neighboring countries such as Germany and Sweden, inter-border consumption was on the rise. The tax had an adverse effect on employment as well. It prompted a fall in production by junk food manufacturers, compelling them to fire employees, thus resulting in a sizeable number of people losing their jobs. Trade Unions, politicians and journalists criticized the policy, soon followed by the general public as most of the burden of the tax was on the poor. As a result, the policy was short lived. It was eventually abolished just 15 months after it had been introduced.

Reaction of Danish citizens when the tax was abolished

 

Other countries such have experimented with similar policies. For instance, Japan has a ‘Metabo’ law which fines citizens with waistlines exceeding the prescribed measurements. This has resulted in an obesity rate of only 3.5% for the entire nation, one of the lowest in the world. Mexico’s taxing policy has increased junk food prices by 8%. It appears to have had a positive affect as research shows a drop of 5% in the consumption of such items. Similarly, Norway restricts availability of unhealthy food to children by imposing taxes as well as banning marketing of such items to children aged 16 years and under.

 

INDIA – GOOD QUESTION

We live in a world where food choices define lifestyle and junk food tax, in theory, is an excellent way for the government to show some concern for the public’s health. Even though the idea looks ideal on the surface, the very Act faces a quandary, because the Food Safety and Standard Act in India does not define what exactly junk food is and what it could possibly be comprised of. The policy emphasizes the levy of taxes on excessive sugar, salt and saturated fats, which could have a potential reduction in consumption of unhealthy food, in the near future.

Friends from Kerala seem worried about the new tax taking the edge off their pocket money. The food industry has reason to wail too, as it can at the very least expect a wobble, since the state is considerably rich in the number of organized outlets of fast food. The tax rate charged on burgers, pizzas and other junk food is 14.5% making it considerably expensive. We should examine the proposition of a tax on the cheaper, unhealthier food items that people go for, when branded food prices are pushed up. The Danish people saw something very similar when fat tax was implemented in their country. Cheaper, unhealthier sources were sought for consumption, which was a ‘no gain’ for both the public and the government. The Denmark government suffered a setback on the revenue while simultaneously, the policy showed almost no improvement in public health.

Even though the burden of tax incidence falls on the consumers, entrepreneurs worry that there will be a hitch in future demand. Foreign multinational companies like PepsiCo and Nestle stand startled as they have floated huge investments into the food industry of the fastest growing economy of the country. The upcoming policy has given them a jolt as it does not look promising for their business. Private investors anticipate losses as evidenced by the fall in stock prices of junk food joints in Kerala.

The fat tax might have experienced success in a few countries, but looks a little out of place in a market barely recovering from six quarter back to back slump in “eating out”. Proponents of fat tax argue that the policy is essential for a state that is home to the second largest population of obese people in the country. It also has a low per capita consumption of fruits and vegetables. The bill if implemented, is going to take a toll on the business environment of the nation and if implemented efficiently, may become a pioneer of health reform in India.

The government mainly sees a source of sizeable revenue from the tax imposition. This revenue is intended to boost the government spending on health, as India is currently one of the nations where the health sector has witnessed very low public spending.

As Bolshevik as our nation has become, with radical policies in a row, it is not too astounding to have the tax implemented, with hardly any precedent. Never mind, our government is on its pursuit to advance “acche din”. Looks like the ‘good days’ have something serious to do with reforming eating habits of our country, which apparently started with the ‘forbidden meat’. One down and the stage is set for the next!

 

-Theerdha Sara

 

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