At the meeting of the UN Committee of Experts on International Cooperation in Tax Matters from 18 to 21 October 2022 the health tax subcommittee gave further details of its developing work.

The subcommittee is focusing on producing a Handbook on health tax setting out the design of taxes on tobacco, alcohol and sugar-sweetened beverages. The Handbook would aim to address issues of concern to policymakers, the design of the taxes and tax administration issues.

The Handbook would provide a general overview and introduction for policymakers; consider the issues involved in the design of health taxes, including how to use the revenue from the taxes; look at implementation of the tax, including the consequences for households, employees and businesses; and look at the political economy of health taxes, including their interaction with other taxes and ways to gain public acceptability.

The Handbook will look at how communication can proceed between different government agencies and between government ministries and health experts. A finance ministry might be expected to consider the benefits of the revenue raised by health taxes, while the health ministry would be more likely to consider the benefits for public health; and the health ministry might expect revenue from the tax to be used for healthcare purposes.

The guidance on the design of health taxes will cover general tax policy considerations in design and application of health taxes. The chapter would look at the tax revenue-raising potential, non-tax factors affecting design and the link between design of the taxes and economic growth.

Health taxes are to be set into a general tax policy framework to allow policymakers to approach the issue from a more high-level tax policy perspective. Various technicalities will be introduced and explained in the Handbook, including the following:

Internalities and externalities

Internalities are future costs to the individual that are not taken into account when buying the product. These may be negative health effects of consuming the product or other consequences for personal welfare.

The externalities are the costs to the public that are not reflected in the price of the goods. In the case of health taxes these could include the costs of additional healthcare needed and damage to the environment from consumption of the products.

Pass-through effects

The chapter will address the issue of how far the health tax will be passed on to consumers, or to what extent the company selling the product will itself bear some or all of the costs resulting from the taxes. One of the factors affecting this decision would be the price elasticity of demand for the product.

Substitution

When drafting a health tax, the policy makers need to take into account substitution effects. If there is a similar product that the customer can purchase instead of the product that is subject to the health tax, this may render the health tax less effective. Policymakers would also need to take into account the extent to which the substitute product is damaging to health or the environment.

Specific or ad valorem taxes

Specific taxes are charged at a fixed amount on certain volumes or quantities of the product, while an ad valorem tax is based on a percentage of the value of the product. The Handbook will set out the advantages and disadvantages of these alternatives or a combination of the two approaches.

Other issues

A chapter of the Handbook will be devoted to the administration issues in relation to the taxes. Administration of the tax would require collaboration between different government agencies and regular monitoring of the effects of the tax. The design of the tax will need to take into account the administrative capacity available, which varies from country to country.

Chapters will also be devoted to specific types of health tax, including taxes on tobacco, alcohol and sugar sweetened beverages.