THE WORLD Bank said countries resorting to “health taxes” like those imposed on tobacco and alcoholic beverages must achieve broad-based partnerships that generate a strong consensus supporting such measures, and not just deploy straightforward arguments like raising revenue and improving public health.
“Health taxes should not be viewed solely through the lenses of health or finance: they demand multi-dimensionality. Implementing health taxes requires understanding the dynamics of tobacco farming and their relationship to excise taxes on products such as fuels and vehicles that can also reduce a range of negative externalities,” the World Bank said in a blog.
“Health taxes have been gaining attention due to their dual focus on health as well as revenue impacts. As a special type of policy tool, they can also generate second-order effects: reduce strain on the health system, lead to more productive populations, and translate human capital gains into economic growth,” it added.
The World Bank said the Philippines’ most successful reforms came about from collaboration by the Health and Finance departments.
“For example, in the Philippines, the successful passage of the Sin Tax Law of 2012 was in large part due to linking the reform to benefits for the health sector,” the bank said.
“The reform was championed across political aisles, and supported by broad consultations with stakeholders and buy-in from leadership at the highest levels,” it added.
In 2012, health tax collections were 0.5% of gross domestic product (GDP) before the reform. They grew to 1.4% of GDP by 2019.
Apart from reducing the consumption of harmful products, health taxes can also raise revenue when designed with the right rate structures, supported by complementary administrative measures, the World Bank said.
“Further, ‘sin taxes’ continue to provide a reliable source of revenue for important priorities like universal health coverage (UHC), a practice aligned to the country’s fiscal system,” it added.
Sin taxes refer to tobacco and alcohol taxes used to fund health programs.
By 2024, revenue from sin taxes is expected to top P480 billion, according to the Department of Finance.
The World Bank said that understanding the political economy behind health taxes, including tax evasion and illicit trade, powerful industry and related stakeholder groups, and government dynamics is key to the effective implementation of health taxes.
“We also recognize the importance of good governance when it comes to tax administration. We work on challenging issues such as compliance that support effective tax policy and revenue collection at the country level, helping improve governance and financial management,” the World Bank said.
“In the current global context, health taxes have a special role to play in the transition toward healthier lifestyles and a more sustainable financial future,” it added. — Luisa Maria Jacinta C. Jocson