What is Fat Tax? India Introduce First Time in Kerala

Recently we news headlines come with some fat tax implementation in Kerala, first time in India, also. But many of us not aware about this term ‘Fat Tax’. Let’s get some background and thoughts on Fat Tax Term. Why is the tax imposed? or What is the actual purpose of fatty tax?.

‘Fat Tax’ Pros and Cons.

What is Fat Tax?

A proposed tax on foods or drinks judged to be unhealthy and whose consumption is believed to be linked to rising obesity levels.

This is just a simple explanation of fat tax in normal people language.

What is the purpose of having a fat tax?

Why Fat Tax Imposes in Kerala, India?

Worldwide, obesity rates have prompted governments to consider imposing a tax to slow sales of food laden with saturated fat and sugars.

Fat Tax is A blow against Obesity

Kerala’s ‘fat tax’ on pizzas, burgers, sandwiches and tacos announced has been hailed as an important public health measure.

Kerala has also levied a 5 per cent tax on packaged wheat products like atta, maida, suji, rava and packaged basmati rice. Coconut oil, a Kerala staple, was chosen for an additional five per cent tax to help raise coconut procurement price.

Who First Time Introduce Fat Tax?

Denmark introduced a fat surcharge a few years ago. on foods that contain over 2.3 per cent saturated fat, drawing criticism about excessive bureaucracy. It was abolished in 15 months.

Although the outcome is still being debated. the British Medical Journal said a year ago. That consumption of ‘junk food’ fell in Denmark by 10 to 15 per cent and the Danish Government could have reaped the dividends, had it stuck to its decision.

Fat Tax on Food Pros and Cons

There are certain effects of this fat tax implementations. But health wise if we see, there are few pros and cons of a fat tax. Let’s look some interesting pros and cons debate on fat tax.

Advantage or Pros of a Fat Tax.

A Fat tax would make people pay social cost of unhealthy food. Consumption of Fatty foods have external costs on society. For example, eating unhealthy foods contributes to the problem of obesity. Obesity is estimated to cost the UK economy around £6.6–7.4 billion a year. (Blackwell-Synergy) .

These costs are due to NHS costs of treating disease related to obesity, such as heart disease, angina, diabetes, strokes.

Time lost at work due to obesity issues.

Lost earnings from obesity related disease and premature death.

Those who are obese are 25% less likely to be in employment, leading to lower tax revenue and higher welfare spending on benefits. A tax on fatty foods would make people pay the social cost of these foods.

Increasing the cost of unhealthy foods, would reduce demand and play a role in reducing obesity levels. Making people pay social cost would achieve a more efficient allocation of resources. (see theory of tax on negative externality)

Encourage Healthier Diet. A tax on unhealthy foods would encourage people to choose healthier foods which lead to improved health and would help reduce related disease. A fat tax would also encourage producers to supply foods lower in fat and sugar. Fast food outlets would have an incentive to provide a wider range of foods.

Raise Revenue. Through increasing tax on fatty foods, the government could raise substantial sums of money. They could use this revenue to offset other taxes – such as decrease the basic rate of VAT. Therefore, a fat tax could be revenue neutral (no overall increase in tax revenue).

Equity Neutral. Also a fat tax could be equity neutral. Some may say a fat tax is regressive (takes a higher % of income from low income families), but if other regressive taxes are reduced the overall impact on equality should be unchanged.

Disadvantage or Cons of Fat Tax.

Difficult to know, which foods deserve a fat tax. e.g. cheese has high fat content. Many foods could contribute to obesity if consumed in sufficient quantities.

Obesity is caused by more factors, than just over-consumption of ‘high fat’ high sugar foods. It includes issues such as size of portions, levels of exercise and genetic factors.

Administration costs in collecting tax from unhealthy foods.

Likely to be regressive. Often people on low-incomes spend a high % of their income on ‘unhealthy foods’.

Costs of obesity may be over-estimated. Obese people have lower life expectancy and so save government pension costs and health care costs in old age.

Know more about Taxation in India,

Conclusion on Fat Tax Debate.

The fat tax is certainly a creative tax proposal that was born out of tough economic times. While it has some definite advantages for both state governments and individual people’s health, there are also some discriminatory issues as well as more damage to people’s wallets.

What are your thoughts on a fat tax?

How would you feel if your state imposed a fat tax on you?

Do you think that a fat tax has an effect on people eating healthier?