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Research Backs Kerela's Fat Tax for India LUCKNOW: Months after Kerala government proposed a 14.5% fat tax on burgers, pizzas and other junk food served in branded restaurants, a battery of researchers have backed taxation on unhealthy food to cut down the risk of diabetes, cardiovascular disease and chronic kidney disease in South Asia. The team of researchers, whose work has made it to the British Medical Journal's April 11 edition, included Prof Anoop Mishra of National Diabetes, Obesity and Cholesterol Foundation India, Prof Nikhil Tandon, department of endocrinology, All India Institute of Medical Sciences besides others. The key message given in the article called Diabetes, Cardiovascular disease and chronic kidney disease in south Asia:: current status and future direction read: "South Asians are more likely than other ethnicity to develop diabetes, cardiovascular diseases and chronic kidney disease. Also, they have an earlier onset and poor outcomes. Thus, strategies for early diagnosis and treatment including awareness generation, opportunistic screening, availability of low cost drugs and task shifting to health workers mist be prioritised. Countries must consider taxation on unhealthy foods, restrictions on advertising, and appropriate food labelling." Noting that cardiovascular disease, diabetes, and chronic kidney disease now account for 27%, 4.0%, and 3.0% of deaths respectively, in South Asia, the article said, "a tax of 20% on sugar sweetened drinks in India is projected to reduce the prevalence of overweight and obesity by 3.0% and the incidence of type 2 diabetes by 1.6% over the period 2014-23, assuming that consumption increases in line with current trends." Citing the example of Mexico, they noted that an excise tax of 10% on sugar sweetened drinks decreased consumption by an average of 6% over one year. They clearly batted for Kerela's fat tax strategy stating, "The Indian state of Kerala recently announced a "fat tax" on pizzas, burgers, sandwiches, and tacos sold through branded food outlets. Such strategies must be adopted in cities of South Asia that experience widespread marketing and consumption of unhealthy fast foods. Furthermore, a 20% tax on palm oil purchases in India is projected to avert approximately 363 000 deaths from myocardial infarctions and strokes over the period 2014-23 (1.3% reduction in cardiovascular deaths). Palm oil is consumed widely in low and middle income countries. It is high in saturated fat and causes a large increase in cholesterol concentrations. Diabetes burden has doubled in the last 10 years from 3.2 crores to 6.3 crores and is projected to grow to 10.12 crores in the next 15 years. Similarly, prevalence of obesity is also as high as 22% among adults as well as children in India. Hypertension is also fast growing in India with a prevalence rate of 25.4% among adults. "With this background, the work offers insight and hope of significantly reducing India's diabetes burden and number of deaths due to cardiovascular diseases in less than a decade. The idea of taxation is worth a thought," said Prof Nirmal Gupta, head of cardiovascular and thoracic surgery department, Sanjay Gandhi Post Graduate Institute of Medical Sciences.

The article published by the Times of India, explains the recently implemented tax on junk food in India. India currently has implemented a 14.5% tax on junk food served in branded restaurants in order to reduce the risk of diabetes and cardiovascular diseases. The implementation of this ad-valorem specific tax, a percentage tax on goods and services, will reduce the demand for these unhealthy options due to the Figure 1

price increase as it will reduce the incentive for consumers to buy these options. The shift in the supply curve creates a new equilibrium price that is higher than the original equilibrium, however the quantity is reduced and thus the goal of reducing consumption is achieved. The issue in India is especially prevalent because, according to the article, “South Asians are more likely than other ethnicities to develop diabetes, cardiovascular diseases and chronic kidney disease.” Furthermore, the obesity level in India has “doubled in the last 10 years from 3.2 crores [100 million] to 6.3 crores, and is projected to grow to 10.12 crores in the next 15 years,” therefore making this an issue that is in need of some level of government intervention. Governments often implement ad-valorem taxes in order to control the consumption of goods such as junk food, which cause negative externalities of consumption, as they are demerit goods. Demerit goods are goods that are considered unhealthy or negative, and cause negative externalities

Figure 2 2

of consumption as a form of market failure. In this case, the consumption of junk food can lead to diabetes, or cardiovascular diseases. Therefore, since more people need healthcare, there is an increase in the marginal social cost, which then causes the marginal private benefit to exceed the marginal social benefit as society is forced to spend more on health care as a result of the consumption of the junk food. Therefore the consumption of unhealthy food options causes market failure. As seen in Figure 2, when the marginal private benefit exceeds the marginal social benefit, the amount of the good that is produced at equilibrium is greater than the socially optimal level of the good. Therefore there is an over allocation of resources in the market for junk food. In a situation such as this one, governments have a responsibility to intervene in order to reduce the size of the negative externality, as it has a negative impact on society. Government intervention, in this case is positive as it allows for a stronger society both economically and in regards to health. The implementation of this tax will hopefully reduce the risk of disease amongst the Indian population along with the other strategies the government is putting in place. Professor Nikhil Tandon stated, “countries must consider taxation on unhealthy foods, restrictions on advertising, and appropriate food labelling.” These strategies are beneficial to both consumers and the government, however it places a burden on fast food producers as it will reduce their sales and prevent them from having as high of revenue. Although this is a genuine concern for producers, the implementation of the tax is in the best interest of the consumers as diabetes and heart disease have become prominent threats in South Asian societies. The taxation is also beneficial to society as it reduces the negative externality as well as generating government revenue. In addition to the tax on junk food, the Indian government has enacted a 20% tax on sugary drinks, which is said to “reduce the prevalence of overweight and obesity by 3.0% and the incidence of type 2 diabetes by 1.6% over the period 20143

23.” If the tax on junk food served in branded restaurants is as successful as the tax on sugary drinks, it would be beneficial to society as it would further decrease the level of obesity, as well as decreasing the level of the externality caused in this situation of market failure. The effects of the tax may not have many short-term effects, however, in the long run there are significant benefits to reducing the consumption of these unhealthy food items by means of government intervention. Lastly, this solution may not provide a full solution for the situation described in the article, though it does significantly reduce the implications of the health issues involved in the consumption of these foods.

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