The Case for Health Taxes

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Higher taxes on tobacco, alcohol, and sugary drinks can raise vital funds for development while improving public health.
These taxes reduce noncommunicable diseases such as cancer, diabetes, and stroke and can lower health care costs.
A 50 percent increase in the price of tobacco, alcohol, and sugary drinks through higher taxes could raise $2.1 trillion for low- and middle-income countries over five years, according to the Task Force on Fiscal Policy for Health.
That $2.1 trillion is equivalent to 40 percent of their public health spending and far exceeds official development assistance, which currently amounts to about $223 billion a year.

Tax increases that raise the price of these harmful products by 50 percent would save 50 million lives over the next 50 years and prevent significant health problems.
Health taxes are progressive in aggregate because:
- People with lower incomes reduce their consumption of these unhealthy products the most in response to higher prices.
- Lower-income groups gain larger health improvements and lower health care costs, offsetting any regressive income effects.
Average current tax levels and gaps:
- The average rate of tobacco tax is 42 percent of the retail price, below WHO’s target of 75 percent.
- Alcohol and sugary drink tax rates are lower still.
- Cigarettes became more affordable in 41 countries between 2016 and 2022, indicating health taxes are failing to keep pace with inflation.

Philippines:
- Successive increases in tobacco excise tax led to a threefold increase in revenue, from $1 billion in 2012 to $2.9 billion in 2022.
- It helped finance health insurance for all.
Lithuania:
- Doubling of tax take from alcohol on a per capita basis by increasing excise tax on beer, wine, and spirits between 2015 and 2022.
- The tax now accounts for 3 percent of total government revenue.
United Kingdom (soft drinks industry levy):
- Led manufacturers to reduce the sugar content of affected products by 43.7 percent between 2015 and 2019—equivalent to removing 45 million kilograms of sugar from soft drinks each year.

Mortality, morbidity, and productivity losses:
- Every year in the United States, tobacco-related premature deaths and smoking-related health conditions result in nearly $180 billion and $185 billion in lost productivity respectively, according to the US Centers for Disease Control and Prevention.
- Researchers have estimated that the economic cost of alcohol consumption amounts to 2.6 percent of global GDP, mostly from productivity losses.
Health system costs:
- Today more than $2 trillion is spent annually treating the five leading noncommunicable diseases.
- Failing to stem the rise in cases would make these costs unsustainable.
Broader fiscal effects:
- Improving public health via health taxes frees up budgets for other services.

Industry profits and lobbying:
- Industry groups lobbied governments for tax breaks during the COVID-19 pandemic.
- Recent research shows the tobacco industry did not lose profits during the pandemic.
- Alcohol and sugary drink industry profits dipped in 2020 but had more or less recovered by the following year and have since seen increasing profits.
Illicit trade and enforcement:
- Governments can mitigate the risk of a black market with stronger enforcement.
- Even where illicit trade does occur, it does not offset the ability to raise revenue and reduce consumption.
Public support:
- Surveys in Colombia, India, Jordan, Tanzania, and the US have consistently found that a majority of people support raising these taxes, especially when the health benefits are explained and revenues earmarked for public services.

Governments, especially in developing economies, should commit to steep increases in health taxes.
Tax rates should be raised regularly above inflation and economic growth to ensure taxes rise in real terms and the products become less affordable over time.
Use revenues to reduce reliance on foreign donors and finance public services such as universal health coverage.
Emphasize health gains to build public support and consider earmarking revenues for public services to increase acceptability.
Strengthen enforcement to limit illicit trade while recognizing illicit trade does not eliminate revenue and health benefits.

MASOOD AHMED and MINOUCHE SHAFIK, "The Case for Health Taxes," F&D Magazine, March 2025.