Health Taxes

Health taxes are taxes imposed on unhealthy products (e.g. tobacco, alcohol, sugar-sweetened beverages). Consumption of these products is a major risk factor for multiple noncommunicable diseases (NCDs), including cardiovascular diseases, cancers, respiratory diseases, and diabetes. They represent negative externalities and socially undesirable consequences that are not reflected in their market price.

Health taxes contribute to reducing the consumption of these unhealthy products. Excise taxes, in particular, have the greatest potential, from a health perspective. Indeed, they allow policymakers to target and raise the price of selected products, making them relatively less affordable than other goods and services. Health taxes lead to a healthier population, a reduction of long-term health care costs, and potential long-term labor productivity gains. Additionally, they generate stable and predictable tax revenue.

They represent a tool to achieve the Sustainable Development Goals, as they can:

significantly reduce the NCD burden (Goal 3)
greatly benefit vulnerable populations which bear larger health burdens (Goals 1,5,10)
boost economic development through a healthier workforce (Goal 8)

Key facts

Health taxes represent a “win-win-win" policy option for governments as they:
- Reduce the consumption of unhealthy products
- Generate additional immediate tax revenue
- Have the potential to reduce long-term health care costs and increase long-term labor productivity
PAHO/WHO has endorsed the implementation of excise taxes on tobacco, alcohol, and sugar-sweetened beverages as part of the WHO Global Action Plan for the Prevention and Control of Noncommunicable Diseases 2013-2020, no extended to 2030.
Based on WHO analysis, increasing excise taxes on tobacco and alcohol are considered “best buy” policy interventions (most cost-effective and feasible for implementation) to prevent NCDs.

Taxing sugar-sweetened beverages is a cost-effective measure which can help reduce obesity, type 2 diabetes and tooth decay.
Health taxes are progressive measures which benefit low-income populations relatively more, once reduced health care costs and health burden are considered.
They result in healthier populations and generate revenues for public budgets even in the presence of illicit trade/evasion.
The evidence shows non-significant effects or net positive effects on overall employment. Any related reductions in employment are likely to be offset by job gains in other sectors.

Fact sheet

In the Americas, NCDs cause approximately 5.8 million deaths per year (81% of all deaths). Of this total number of deaths from NCDs, 38.9% are premature deaths (<70 years old). NCDs impose high direct medical costs to households which can lead to catastrophic out-of-pocket health expenditures, as well as indirect costs such as loss of income, working time or productivity, reducing household welfare. Macroeconomic simulations suggest that the four main NCDs – cardiovascular diseases, chronic respiratory diseases, cancers, and diabetes – and mental health disorders could cost cumulative economic losses of USD 47 trillion globally (75% of 2010 global GDP) during the two decades 2010-2030 (Bloom et al., 2011).
In the Americas, the prevalence of tobacco smoking is 16.6% among the population over 15 years old and tobacco use is responsible for an estimated 1 million deaths every year. Total global economic cost of smoking – from associated health expenditures and productivity losses – was estimated to be about USD 1.4 trillion in 2012, equivalent to 1.8% of the world’s annual global GDP (Goodchild et al., 2018). In Latin America, the direct medical cost associated with tobacco use exceeds 6.9% of health budgets, equivalent to 0.6% of GDP (Pichon-Riviere et al., 2020).
Alcohol is responsible for 5.5% of all deaths in the Americas and 6.7% of all disability-adjusted life years (a measure of overall disease burden, expressed as the number of years lost due to ill-health, disability or early death). Regionally, 8.2% of the population over 15 years old has an alcohol use disorder (5.1% for women, the highest prevalence compared to other WHO regions).
In 2016, an estimated 62.5% of adults in the Americas were overweight or obese (the highest prevalence compared to other WHO regions). In 2012, approximately 62 million people were living with type 2 diabetes in the Americas. In addition, daily consumption of sugar-sweetened beverages is the highest in the world in the Region, with up to 1.9 daily 8-oz serving per adult in the Caribbean compared to 0.5 globally (Singh et al., 2015).
Increasing excise taxes on tobacco products, alcoholic beverages and sugar-sweetened beverage is one of the most cost-effective policies to reduce their consumption and to prevent associated NCDs.
The scientific evidence indicates that people with NCDs are at higher risk for serious complications if they get COVID-19. Excise taxes contribute to prevent NCDs reducing the consumption of unhealthy products (tobacco, alcohol, and sugar-sweetened beverages). Excise taxes could be used as an additional and immediate source of tax revenue to respond to the COVID-19 pandemic and to finance economic recovery plans. The additional tax revenue can participate in increasing the budget for public health towards achieving universal health coverage.

PAHO Response

PAHO supports health authorities in bringing economic reasoning into their dialogue with other sectors, both in building bridges between public health and non-health sectors to advance for whole-of-government action on NCD prevention and in providing economic arguments to reach fiscal and health policy coherence on excise taxes on tobacco, alcohol, and sugar-sweetened beverages.

PAHO provides capacity building activities to health and finance officials and generate and disseminate regional- and country-level evidence on the use of health taxes and their economic impact.

Health Taxes Effectiveness

PAHO/WHO guidance and technical reference documents on the use of health taxes

ALCOHOL

(WHO) technical manual on alcohol tax policy and administration

Global report on the use of alcohol taxes, 2023

Calculating Standardized Tax Share and Other Price and Tax Policy Indicators for Alcoholic Beverages in the Region of the Americas: Methodological Note

Comparing taxes on alcoholic beverages in the Region of the Americas

(PAHO) Policy Brief: Alcohol Taxation and Pricing Policies in the Region of the Americas

(WHO) Resource tool on alcohol taxation and pricing policies

SUGAR-SWEETENED BEVERAGES

(PAHO) Sugar-sweetened beverage taxation in the Region of the Americas

WHO Manual onSugar-Sweetened beverage taxation policies to promote healthy diets

Global report on the use of sugar-sweetened beverage taxes - 2023

Excise taxes on sugar-sweetened beverages in Latin America and the Caribbean

(PAHO) Taxes on Sugar-sweetened Beverages as a Public Health Strategy: The Experience of Mexico

Calculating Standardized Tax Share and Other Price and Tax Policy Indicators for Sugar-Sweetened Beverages in Latin America and the Caribbean: Methodological Note

(PAHO) Calculating Standardized Tax Share and Other Price and Tax Policy Indicators for Sugar-Sweetened Beverages in Latin America and the Caribbean: Methodological Note

TOBACCO

WHO report on the global tobacco epidemic, 2023: protect people from tobacco smoke

(WHO) technical manual on tobacco tax policy and administration

Health taxes Efectiveness

Health taxes are effective in reducing the consumption of unhealthy products (tobacco, alcohol, sugar-sweetened beverages). Below are some of the main international publications on the evidence regarding their effectiveness.

TOBACCO

— IARC (2011) – Effectiveness of Tax and Price Policies for Tobacco Control

— World Bank (2017) – Tobacco Tax Reform at the Crossroads of Health and Development: A Multisectoral Perspective

ALCOHOL

— World Health Organization Europe (2009) – Evidence for the Effectiveness and Cost-effectiveness of interventions to reduce alcohol-related harm.

— Elder RW et al. (2010) – The effectiveness of tax policy interventions for reducing excessive alcohol consumption and related harms. American journal of preventive medicine

— Wagenaar AC et al. (2009) – Effects of beverage alcohol price and tax levels on drinking: a meta‐analysis of 1003 estimates from 112 studies. Addiction.

SUGAR-SWEETENED BEVERAGES

— World Bank (2020) – Taxes on Sugar-Sweetened Beverages : Summary of International Evidence and Experiences

The tobacco, alcohol and sugar-sweetened beverage industries generally use the same arguments in all countries to dissuade governments from raising taxes on unhealthy products. In this section you will find 4 categories of publications on the scientific evidence of the economic impact of health taxes:

- General: address the economics of health taxes as a whole.

- Illicit trade: address the potential impact of health taxes on illicit trade, finding that non-price factors such as governance status, weak regulatory framework, social acceptance of illicit trade, and the availability of informal distribution networks appear to be far more important determinants of the size of the illicit market. In addition, this size is often overestimated.

- Employment: address the impact of health taxes on employment, finding non-significant effects or net positive effects on overall employment, suggesting that reductions in employment related to producing and selling unhealthy products is likely to be offset by job gains

- Distributional impact: address how health taxes impact different income groups, finding that while they appear regressive when considering only taxes paid and the potential increase in spending, when taking into account the long-term health benefits and the associated reduction in health expenditures and the healthy life years gained and the associated increase in lifetime income, health taxes are actually progressive.

GENERAL

— NIH & WHO (2016) - Monograph 21: The Economics of Tobacco and Tobacco Control

— IARC (2011) – Effectiveness of Tax and Price Policies for Tobacco Control

— World Bank (2017) – Tobacco Tax Reform at the Crossroads of Health and Development: A Multisectoral Perspective

— World Bank (2020) – Countering Common Arguments Against Taxes on Sugary Drinks

ILLICIT TRADE

— World Bank (2019) - Confronting Illicit Tobacco Trade: a Global Review of Country Experiences.

— de Miera Juarez BS et al. (2020) – Measuring the illicit cigarette market in Mexico: a cross validation of two methodologies. Tobacco Control

Research for tobacco control in Mexico

— Maldonado N et al. (2018) – Measuring illicit cigarette trade in Colombia.

— Paraje G. (2018) – Illicit Cigarette Trade in Five South American Countries: A Gap Analysis for Argentina, Brazil, Chile, Colombia, and Peru. Nicotine & Tobacco Research

— Szklo AS et al. (2020) - Cross-validation of four different survey methods used to estimate illicit cigarette consumption in Brazil. Tobacco Control.

EMPLOYMENT

— Wada R. (2017) – Employment impacts of alcohol taxes. Preventive medicine

— World Bank (2020) – Business, Employment, and Productivity Impacts of Sugar-Sweetened Beverages Taxes

— Guerrero-Lopez CM et al. (2017) – Employment changes associated with the introduction of taxes on sugar-sweetened beverages and nonessential energy-dense food in Mexico. Preventive Medecine

— Powell LM et al. (2014) – Employment impact of sugar-sweetened beverage taxes. American Journal of Public Health

DISTRIBUTIONAL IMPACT

— World Bank (2019) – Distributional Effects of Tobacco Taxation: A Comparative Analysis.

— World Bank (2017) – Are tobacco taxes really regressive?: evidence from Chile

— World Bank (2020) – Health and Distributional Effects Taxing Sugar-Sweetened Beverages: the case of Kazakhstan.

— Vandenberg B & Sharma A (2016) - Are Alcohol Taxation and Pricing Policies Regressive? Product-Level Effects of a Specific Tax and a Minimum Unit Price for Alcohol. Alcohol and Alcoholism

Tax revenue from health taxes can be earmarked towards health programs, either specifically targeting NCD prevention or not. It can also serve as a general source of revenue to fund the budget for public health towards achieving Universal Health Coverage.