On 19 April the Centre for Global Development (CGD) held a discussion on how the IMF and World Bank can use their knowledge of health taxes to help lower- and middle-income countries recover more quickly from the pandemic.
The panel consisted of Mr. Mario Mansour, Division Chief for tax policy, Fiscal Affairs Department, IMF; Ms. Mamta Murthi, Vice President for Human Development, World Bank; Ms. Karambu Muthaura, Policy and Tax Advisory Division, Kenya Revenue Authority; and Ms. Sania Nishtar, Senator and former special assistant of the Prime Minister on poverty alleviation in Pakistan.
Health taxes and the recovery
The CGD and many other experts find that health taxes levied on tobacco, alcohol, and sugar-sweetened beverages can play a part in boosting revenue in low- and middle-income countries while also being a highly cost effective intervention to support better health outcomes. Despite this, action on health taxes has understandably slowed during the pandemic, and the focus of IMF programs on health tax measures has significantly diminished compared to the pre-pandemic period.
The World Bank is concerned about the setback to human development outcomes from the pandemic, for example from the closure of schools. There have been setbacks to health, not just from the effects of Covid but from the postponed care for other diseases. The pandemic has cast a spotlight on other non-communicable diseases (NCDs) like obesity that have contributed to higher Covid death rates.
Health tax can be part of the solution in producing better health outcomes and in raising revenues. The World Bank has a new health tax program involving analytical and advisory work to provide technical support to governments on health.
Design of health taxes
Often the discussion around health taxes centres on revenue generation, but the health implications are also important. Explaining the health gains is however more complex. The focus in explaining health benefits should be on the changes in public behaviour following the introduction of health taxes.
The design of a health tax package must support better health outcomes in addition to raising revenue. This requires close cooperation between health and finance ministries. Soft earmarking of revenue can help to achieve human development outcomes or better services for lower income groups. The design of the tax and communication to the public must be right if it is to be effective.
Two important factors affecting tax revenues are the design of the tax and the response of consumers to changes in prices. Some excises are proportionate to price; and some are independent of price, based on a measure of volumes of consumption. A third scenario common in tobacco tax is a combination of the two factors. The impact on revenues of each scenario is fundamentally different.
Capacity building
The IMF provides broad technical assistance on taxes, including health taxes. Health taxes have been receiving more attention in the past twenty years. The IMF deploys resources in building analytical tools so countries can perform their own analysis of the impact of a tax. The capacity development strategy involves the integration of aims, to look at the tax system in a country and consider what is suitable for that country. If country-specific considerations are taken into account this can help to gain support for the tax.
The World Bank and IMF are cooperating on relevant issues through the Inter Agency Task Force on the Prevention and Control of Non-communicable Diseases and through the Platform for Collaboration on Tax. The IMF has also issued “How To” notes on tobacco excises, sugar-sweetened beverages and institutional aspects.
