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Fat Tax: New Weapon Against Obesity

About a year after launching the First Action Plan for Sugar Reduction, the Ministry of Food and Drug Safety announced that from this June, it will provide various contents such as logo songs, animations, and videos to spread public awareness on excessive sugar consumption. This shows that modern Korean society is in a war against obesity, considering continuous increase of the obesity rate. As a solution for this problem, there is a controversial policy named the ‘Fat tax.’ The Sungkyun Times (SKT) now explains the meaning of fat tax, the controversies surrounding it, and the way to effectively apply it to modern society.

Explanation About Fat Tax

The Origins of Fat Tax

chicagotribune.com/ Soft drinks are main targets of fat tax.

Fat tax is a kind of tax which is imposed on food linked to obesity. In modern society, the number of obese people is rapidly increasing due to the lack of nutritious meals and reduced amounts of exercise. To solve this problem, fat tax was introduced to lower the obesity rate and the cost for treating obesity. The regulated subject of this tax is food made of fattening ingredients such as sugar or fat. The tax is mostly implemented as a form of sugar tax, a tax charged on soft drinks which contain a large amount of sugar. Besides this, there are several other forms of imposing surcharges on junk food, chocolate or candy. In addition to regulating certain types of food like in the cases above, it is also possible to impose fat tax on all kinds of food which contain saturated fat exceeding the certain percentage of the recognized standard.

In fact, the World Health Organization (WHO) officially recommended fat taxes last year. They emphasized the positive effect of the tax, mentioning that by enforcing a 10% fat tax, Mexico could decrease the consumption of soft drinks by 6% that year.

Controversies over Fat Tax

There existed a kind of fat tax before the term ‘fat tax’ was created, but it was mostly limited to imposing a surcharge on sweets. It was in 2011 when Denmark first introduced a modern form of fat tax. Denmark decided to impose 16 Krone per kg (about ₩3,400) for products containing 2.3% or more saturated fatty acid. The charge of fat tax, however, was criticized for decreasing business income and was eventually abolished only after a year. Despite the abolition of the tax in Denmark, many countries around the world are still implementing fat tax, based on research which says that the tax can have a positive effect on decreasing obesity. For example, the United Kingdom is going to put a levy on sugared beverages from next year. The issue of introducing fat tax is also controversial in Korea, as the obesity rate has increased by 1.7%p over the last 10 years. In 2013, the Ministry of Health and Welfare of Korea announced that it would impose fat tax on carbonated drinks which contain sugar of more than half of the recommended daily intake, but its plan l foundered because of the strong opposition. In other words, as fat tax can cause some social problems, criticism on whether it is best to implement fat tax has been brought up recently.

Doubts on the Effectiveness of Fat Tax

Causing Economic Chaos Within Capitalism

Fat tax itself is an arbitrary notion, which can result in the confusion of the tax system. A tax policy should be as simple as possible, and in particular, the rules on the range of its application should be clear based on the social consent and the standard of validity and objectivity. A present fat tax, however, is a system of regulating individual items, imposing a tax on one food and not on the others. This way of taxation, therefore, is quite arbitrary. Furthermore, there are no exact guidelines that deal with the usage of money collected as fat tax, which can lead to the distrust of citizens toward the government’s taxation policy.

Implementation of fat tax also has the potential of damaging the national economy. The tax can lead to a decline in food consumption as the food prices rise, eventually resulting in the decrease in corporate profits, real wages, and the number of jobs. For instance, in Denmark, prices of staple diet foods such as butter, oil, sausage, cheese and cream increased by an average of 9% and this increased the unemployment rate. The unemployment problem became so serious that the meat industry sued the government’s fat tax policy, which triggered the abolition of the policy. Thus, the present fat tax needs more integrated and specific regulations which can solve the arbitrariness of the current system.

Deepening the Gap Between the Rich and Poor

An obese population tends to be more concentrated in the lowincome group than the high-income group. Especially in Korea, according to the National Health Insurance Service (NHIS), the obesity rate of the lowest income group is about 3.5 times higher than that of the highest income group. The lower the income people earn, the narrower the range of food choices they will have, which leads to more frequent consumption of high calorie and innutritious food such as junk food or instant food.

In addition, putting the burden of taxation only on the lowincome group can bring the adhesion of the polarization of wealth. This implies that if fat tax is implemented, it becomes more difficult for lower-income people to reserve medical expenses for curing obesity and its complications, thus leaving the problems of obesity unsolved. As a result, continuing obesity makes one become introverted and triggers sluggish participation in economic activities, which are directly connected to constant poverty. To solve this problem, it is necessary to change the present fat tax into the new form of taxation which can fundamentally eliminate poverty, the root cause of obesity.

Absence of Infrastructures Supporting Fat Tax

Under the current fat tax system, there is a high possibility of finding substitutional goods in other places which do not impose the surcharge. That is, the person is still able to consume fattening food nearby in places where the tax does not exist, although he or she lives in the region in which fat tax is charged on. The European Union (EU) or the United States (US) is the representative example of evading fat tax. In fact, Denmark withdrew their fat tax policy as the number of citizens who bought regulated food in other countries of Europe without fat tax increased rapidly.

Moreover, obesity is a disease which occurs due to several complicated reasons rather than only food. Without considering this fact, fat tax is therefore likely to fail to accomplish the national goal of health promotion. Particularly, people addicted to foods that cause obesity may not be affected by the tax like the expectation because their price elasticity is low. It is therefore expected that advantages of fat tax can be maximized if infrastructures regarding various factors such as surrounding environment and individual characteristics are built.

How to Effectively Apply Fat Tax

Improvement of Fat Tax

Although there are some side effects, fat tax is quite an effective means of lowering the obesity rate as it uses the strong method of mandatory taxation. Abolishing the tax policy, thus, can be a hasty decision. Rather, it would be desirable to modify the system to overcome current problems and maximize its positive effects.

•Establishing a Valid Fat Tax in an International Unit

Until now, fat tax was only valid within a country. This, however, weakens the advantages of the policy in this globalized age, as each fat tax policy from different regions cannot interact with each other due to their arbitrariness. Establishing a common standard is especially important in Europe, where the obesity rate is high, because most countries are bound to the community of the EU.

Therefore, beyond the simple official recommendation, it is required to make an international consultation about fat tax under the guidance of the WHO. The international form of fat tax must adopt a model in which the tax is applied to foods with ingredients causing obesity and its percentage increases depending on the amount of fattening content. Most experts say that the tax should be rated high because fattening foods usually have low price elasticity, which means people are reluctant to stop consuming them regardless of prices. Also, the taxation method had better be a form of individual consumption tax rather than value added tax (VAT). Unlike VAT, individual consumption tax makes it possible to impose a different amount of tax on each product under the individual consumption tax system. Being more specific, there are two kinds of individual consumption tax, ad valorem (tax based on value) duty and specific duty. Among these, it is suitable to choose specific duty. While ad valorem duty imposes a certain percentage of tax on the price of products, specific duty imposes tax according to the amount of content of fattening ingredients. Thus, there are some worries about ad valorem duty because companies can produce food in low quality to avoid tax when there are healthy foods and obesity-inducing foods at the same prices. Specific duty, however, is well suited to fat tax in that it can regulate the actual content of a fattening ingredient.

•Using Revenues from Fat Tax for Promoting Public Health

To promote public health, which is an original purpose of fat tax, revenues collected from the policy have to be used for health and medical welfare, especially for low-income groups. Lowincome groups’ frequent consumption of fattening food is due to its cheaper price, so a tax burden on them can be minimized by providing the revenues as a subsidy for buying nutritious food. The additional expenditure will help them cover the cost spent for fat tax and consume healthier products.

It can be another way of welfare to use the revenues for health education for children and young people. The education includes correcting their bad eating habits by warning of the dangers of obesity-inducing foods, and regular body composition analysis. Considering that 70% of the obese populations in childhood are directly related to adult obesity, this can be an effective long-term solution for reducing the overall obesity rate.

Building Infrastructures to Support Fat Tax

It is obvious that food is the most direct cause of obesity, but exercise and genetic factors also work together to trigger obesity. In other words, when there is an infrastructure which deals with other causes besides food, fat tax can work more effectively. It is required to build a personalized health care system which considers various factors such as age or sex.

In Korea, the NHIS is providing personalized individual health program based on health examination results. It, however, has low accessibility since it is just targeting online applicants. In order to activate the health program, the government should deploy mangers in national health centers. The health center in Hongseonggun can be a good example as it is providing personalized obesity management for middle-aged men and women. It is also possible to deal with genetic factors if the program deals with family history related to obesity or certain diseases. While operating the health program, social workers must regularly visit elderly people and low-income groups, who are most vulnerable to obesity, to check their exercise and eating habits.

zvwhj2141.tistory.com/ Personalized Indivisual Health Program by NHIS

hkbs.co.kr/A Personalized Obesity Management in Hongseong-gun

It is true that a present fat tax has several problems. Fat tax, however, is still meaningful because it definitely has room for improvement. If the tax can be modified into a more integrated and sophisticated form than that of the current system, it is expected to become an effective means to decrease the obesity rate in the near future.

이수연  pim545@naver.com

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