The New Syntax of “Sin” Taxes: Framing Health Taxes to Strengthen Public Finances and Advance Population Health

August 20, 2019


The establishment of universal health coverage is one of the key pillars of progress toward the Sustainable Development Goals (SDGs), particularly SDG3. But as low- and middle-income countries (LMICs) transition away from aid, national ministries of finance will increasingly be expected to stretch domestic resources to replenish diminishing donor funds. At the same time, LMICs must deal with the ongoing burden of HIV, TB, malaria, and other communicable diseases, while also tackling the growing threat of noncommunicable diseases (NCDs), such as diabetes and cancer.

It’s well recognized that tobacco, alcohol, and unhealthy diets contribute significantly to the NCD burden. Yet only relatively recently has evidence of the public health benefits of taxing tobacco, alcohol and sugary beverages been accumulated—even though taxing “bads” is not, in fact, a modern idea. In 1604, at a time when tobacco smoking was actually considered a healthy pastime, King James I of England—with seemingly singular prescience—described it as “a custome lothsome to the eye, hatefull to the Nose, harmful to the braine, dangerous to the Lungs” and slapped a heavy import tax on the “noxious weed.”

The importance of design and context

Today, 188 countries tax tobacco, more than 160 tax alcohol, and taxes on sugary beverages exist in some form in at least 39 countries. However, until recently the focus of these taxes has mainly been to raise revenue, rather than to improve public health outcomes. And while wealthier countries with well-established tax regimens were the first to levy these taxes for health reasons, it is in LMICs where public health goals have been the primary driver, with revenue only a secondary objective.   

Yet excise taxes may actually be an ideal vehicle for domestic revenue mobilization in low-income countries, as they can be less costly and require less institutional capacity to implement than other forms of taxation. To date, international support for low-income countries trying to mobilize additional revenues has largely been focused on income taxes and VAT, with health taxes seen as, at best, a modest, complementary source of funds. But, could a dynamic approach begin with those taxes that are easiest to collect, building on the experience to develop effective tax-collecting institutions?

Considerable research has shown that health taxes are worthwhile—that is, they can raise sufficient revenue to justify both the administrative effort and the political capital needed to introduce and implement them. But questions remain about whether and how these taxes can be collected efficiently, and how lower income countries in particular could best utilize them to mobilize domestic revenue.

Health taxes are likely to be more effective when they’re designed to be simple, to rise automatically with inflation and wage growth, to coordinate with neighboring countries, and to connect in the public’s view to important expenditures. They’re also likely to be more effective if they’re designed with attention to the potential trade-offs between improving health and increasing revenues. Above all, the design of good tax policy must be consistent with a country’s overall context—economic, social, and political—as well as its existing tax system and strategy for the future.

Current research initiatives

These issues are at the core of a number of current international research initiatives. Among them is the Economics of Tobacco Control Research Initiative, which is funding a series of projects, including one focused on strengthening evidence for advancing tobacco control policy in Mexico, Colombia, and India that will generate tax structure recommendations for each country. A collaboration between the Economics of Tobacco Control Project at the University of Cape Town, the International Centre for Tax & Development, and the Consortium pour la recherche économique et sociale is looking at best practices to inform tobacco tax reforms to promote economic development in West Africa. A project led by the Centre for the Study of the Economics of Africa in Nigeria aims to obtain local evidence on the optimal taxation structure and levels for tobacco products.

In the Western Balkans the Institute of Economic Sciences (IEN) coordinates a regional network of research on tobacco taxation, focusing on economic and fiscal aspects of national tobacco taxation policies. The Bloomberg Initiative to Reduce Tobacco Use funds Accelerating Progress on Tobacco Taxes in Low‑and Middle‑Income Countries, which aims to build capacity of economic and fiscal policy-focused think tanks to provide evidence-based support for effective tobacco taxes. The World Health Organization’s (WHO) Tobacco Free Initiative works with countries to help implement better tobacco tax policy, and WHO has developed the Tobacco Tax Simulation model to facilitate tax policy analysis and impact assessment. In conjunction with the Thai Center for Alcohol Studies and the Canadian Centre for Addiction & Mental Health, WHO has also developed a resource tool to support the inclusion of key public health perspectives in the design and implementation of alcohol taxation and pricing policies.

A political challenge

Levying health taxes is, above all, a political challenge, and broad political support is essential. Further research and sharing experiences are valuable in informing policymakers about what they’re likely to be able to achieve in their own countries. Political strategies for enacting health taxes are critical and are often best informed by the experiences of others. Documenting the experiences of countries that have tried to raise health taxes and the direct exchange of experiences between countries could support more effective action.

A new international initiative could address the evidence gaps and promote these exchanges between policymakers from low-income countries and the international community, to help countries assess the value of raising health taxes. Such an initiative could also develop guidance for countries, both in navigating existing resources for designing the taxes, and in developing political strategies for their successful implementation.

As a first step, CGD recently held a workshop in London bringing together experts in public health, tax administration, international development, public policy, and domestic revenue mobilization to discuss their experiences and identify opportunities for further research and collaboration. Later this year, CGD will hold an international roundtable in Tanzania, to engage further with public officials and experts from the region, and with a view to fleshing out the nature and scope of this proposed initiative, and shaping an agenda for coordinated research, collaboration and engagement. 


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.