A tax on sugar-sweetened beverages to keep non-communicable diseases at bay

Government action to improve health indices

The Federal Government has introduced an excise duty of N10 per liter on non-alcoholic, carbonated, and sugar-sweetened beverages (SSBs) as contained in the Finance Act of 2021. According to a 2016 global soft drinks market analysis, Nigeria is the fourth highest consumer of soft drinks (with over 40 million liters sold annually) and the proposed Pro Health tax is a public health initiative aimed at combatting the rising prevalence of Non-Communicable Diseases (NCDs) like obesity, type 2 diabetes (T2D) and tooth decay. Data indicates that 1 out of every 17 adults in Nigeria is living with diabetes

The Nigerian health sector is severely underfunded, and the Honourable Minister of Finance indicated that the taxes would be earmarked for the health sector to fund health interventions. This is important because Nigeria has to date not allocated close to the 15% of its GDP on health, as heads of state of African Union member countries pledged to do when they made a political commitment in 2001 as part of the Abuja Declaration. Dealing with the rising rates of non-communicable diseases will be a challenge in Nigeria and a drain on the country’s already stretched health resources because diabetic patients, for example, are often prescribed long-term medication to manage their condition and quality of life.

Comprehensive approach to preventing NCDs. 

There is a lack of awareness about the negative health consequences of SSBs and by imposing the excise duty, the expectation is that less SSBs will be consumed. Consumers have to understand the adverse health consequences resulting from the consumption of SSBS. So, there would need to be clear communications and dialogue with consumers and multiple stakeholders to overcome any opposition to the introduction of the excise duty.

SSBs have little to no nutritional value, so a tax on SSBs should be viewed as one component of a comprehensive approach to tackling unhealthy diets, boosting the immune system, and addressing diet related NCDs. The economic case for tackling NCDs in Nigeria is very strong; government action on NCDs is very critical for productivity and economic growth. In addition to the significant health burden, diet related NCDs have enormous social and economic costs, including reduced employment, higher absenteeism, lower productivity (due to premature mortality or morbidity), reduced tax revenue, and higher public expenditure on health and welfare. 

Country experiences introducing SSB taxes 

A range of countries have introduced SSB taxes, although the amount of revenue generated can be difficult to predict, especially when a tax is successful in reducing sales and/or incentivising manufacturers to reformulate their products. In April 2018, the UK government introduced a sugar tax (officially called the Soft Drinks Industry Levy (SDIL) on sweetened drinks. This was part of their childhood obesity strategy and was aimed at reducing sugar consumption and encouraging companies to reformulate their high sugar drinks, otherwise they would pay the levy.

Mexico introduced an excise tax on sugar sweetened drinks in 2014 as the government wanted to reduce the consumption of unhealthy drinks. The excise tax equated to about a 10 percent increase in prices of drinks that contain added sugar. According to data from the World Bank, the excise tax led to a decrease in per capita expenditure on SSBs, while leading an increase in the consumption of bottled water.

Low-income households tend to be more prone to ill-health and are often disproportionately impacted by NCDs. So, in the long-term a drop in SSB-related health conditions would lead to individuals spending far less on their medical costs, while earning more from increased years of productive life.  SSBs tend to take up a proportionally higher share of the income of poorer income groups, so the reduction in this spending, would mean that the funds could be channelled to other goods and services.

As Nigeria charts a path to achieving Universal Health Coverage (UHC), sustained and stable funding in the health sector will be essential. A comprehensive approach to build back better, given the economic consequences of COVID-19, must take into account the health burden of NCDs and the resulting loss in productivity.

Vivianne Ihekweazu is the Managing Director of Nigeria Health Watch.