On 16 July 2020, the Pan American Health Organization (PAHO) and the National Institute of Public Health of Mexico (INSP) co-hosted a webinar on excise taxes on tobacco, alcohol, sugar-sweetened beverages and non-basic food with high caloric density to prevent noncommunicable diseases (NCDs) and as a source of additional revenue in the context of the COVID-19 pandemic.
The webinar titled “Excise Taxes to Prevent NCDs and as a Source of Revenue During COVID-19: the Case of Mexico” was attended by over 300 participants from numerous countries of the Region of the Americas, including officials from Ministries of Health and Finance, professionals in tobacco and alcohol control, nutrition, researchers, and advocates from civil society organizations.
Panelists included high officials from the Mexican Ministries of Health, Finance and Economy, as well as the INSP, and representatives of several intergovernmental organizations, such as the World Bank, the Inter-American Development Bank (IDB) and the World Health Organization (WHO).
The webinar was organized under the framework of the Inter-American Task Force on NCDs, in light of the scientific evidence that indicates that those with NCDs are at higher risk of severe COVID-19 disease and more likely to die from COVID-19, and in the context of the crisis that the COVID-19 pandemic represents for health systems and the economy.
The Inter-American Task Force on NCDs, officially created in June 2015, is comprised of PAHO, the Organization of American States (OAS), the Inter-American Development Bank (IDB), the World Bank, the Inter-American Institute for Cooperation on Agriculture (IICA), and the Economic Commission for Latin America and the Caribbean (ECLAC). Through this alliance, it seeks to take advantage of the knowledge, resources and regional experience of each institution to offer better cooperation on NCDs and their risk factors through a more integrated approach.
Increasing excise taxes for health
NCDs is the main cause of disease burden and death in Mexico, as well as in the rest of the Region of the Americas. As of 2016, 4 out of 5 deaths in the Region were due to NCDs, with approximately 40% of NCD deaths occurring among persons aged less than 70 years. The four main NCDs (cardiovascular diseases, cancers, diabetes mellitus, and chronic respiratory diseases) accounted for three quarters of all NCD deaths in the Americas. Worldwide, the annual cost of these four NCDs has been estimated to be US$ 3.8 trillion in 2010 and is projected to increase to US$ 7 trillion by 2030.
Excise taxes contribute in preventing NCDs by reducing the consumption of tobacco, alcohol, sugar-sweetened beverages and non-basic food with high caloric density. Furthermore, in a context where countries may need additional resources to respond to the COVID-19 pandemic and to finance economic recovery plans, excise taxes on these products could be used as a source of additional and immediate tax revenue. After the pandemic, these tax revenues could serve as partial compensation for expenses incurred in NCD care and participate in increasing the budget for public health towards universal health coverage.
The Case of Mexico
In Mexico, in the face of the emergency caused by the COVID-19 pandemic, a proposal is being debated which intends to modify the legislation on excise taxes (Impuesto Especial sobre Producción y Servicios – IEPS for its acronym in Spanish) on tobacco, alcohol, sugar-sweetened beverages and non-basic food with high caloric density to compensate for the damage on Mexicans’ health. It proposes increasing the IEPS on these products and earmarking the additional tax revenue to public health spending.
During their opening remarks, Dr. Anselm Hennis, Director of the Non-Communicable Diseases and Mental Health Department at PAHO, and Dr. Juan Rivera, INSP Director, highlighted the growing NCD burden both at national and regional level and the need for multisectoral action in preventing NCDs. They were followed by Dr. Francisco Javier Arias Vázquez, Director of the Fiscal Policy and Budget Control Unit in the Ministry of Finance and Public Credit, and Dr. Ernesto Acevedo Fernández, Undersecretary of Industry, Commerce and Competitiveness in the Ministry of Economy, who both reaffirmed that excise taxes on unhealthy products, such as the IEPS, are different than other types of taxes, as they are not only applied to collect revenue, but also to induce behavioral change and correct externalities arising from the consumption of unhealthy products.
Following these opening remarks, Ms. Rosa Sandoval, Regional Advisor on Tobacco Control and Coordinator of the Economics of NCDs team at PAHO, presented the global and regional mandates on excise taxes for health and the rationale to foster their use in the context of COVID-19.
Researchers from the INSP, Dr. Luz Myriam Reynales, Dr. Tonatiuh Barrientos, and Dr. Arantxa Colchero presented national prevalence data and evidence on the effectiveness of these taxes in Mexico. They made the case for increasing the IEPS further and indicated that Mexico has experienced positive outcomes from previous increases in the IEPS on tobacco, alcohol, sugar-sweetened beverages, and non-basic food with high caloric density. For example, in the case of tobacco, Mexico’s substantial cigarette tax increase in 2011 led to a decrease in the average daily consumption by daily smokers from 9.2 cigarettes per day in 2009 to 6.9 cigarettes per day in 2016. Additionally, tobacco tax revenue increased by 24% after the 2011 tax increase. Similar effects were also presented for the IEPS on alcohol, sugar-sweetened beverages, and non-essential food with high caloric density. Altogether, the INSP estimates that the currently debated proposal to increase the IEPS on these four unhealthy products would raise an additional $60.25 billion Mexican pesos in annual tax revenue (equivalent to US$ 2.7 billion).
An international panel involving Ms. Ceren Ozer, Mr. Daniel Alvarez, and Dr. Alan Fuchs from the World Bank, Dr. Bill Savedoff from the IDB, and Mr. Jeremias Paul Jr. from WHO, discussed the industry’s strategies and scientifically unfounded claims to oppose excise taxes for health and provided evidence-based counterarguments. Indeed, they emphasized that these taxes result in healthier populations and generate revenues even in the presence of illicit trade or tax evasion. These are progressive measures which benefit low-income populations relatively more once health care costs and health burden are taken into account. In addition, the panel highlighted that these taxes represent a bold and cost-effective policy intervention to correct market failures and to achieve the Sustainable Development Goals, by significantly reducing the NCD burden, greatly benefiting vulnerable populations which bear larger health burdens, and boosting economic development through a healthier workforce.
Dr. Cristian Morales, PAHO/WHO Representative in Mexico, shared remarks reiterating PAHO’s commitment to provide technical support and further collaborate with Mexican authorities on the use of excise taxes for health. Finally, Dr. Hugo López-Gatell, Undersecretary of Prevention and the Promotion of Health in the Ministry of Health, closed the webinar by emphasizing on the need for improving the use of excise taxes for health as well as other comprehensive policies to prevent NCDs, which remain pervasive in Mexico.
PAHO hopes that this webinar is the beginning of continued collaboration between the Ministries of Health, Finance and Economy, the INSP and PAHO on this matter and that the experiences shared and the lessons learned during this webinar will not only support Mexico in improving the health of its population and fostering sustainable development, but will also benefit the entire Region of the Americas.
