COMMENTARY: Tax policy and health

COMMENTARY: Tax policy and health

I have been  moved to write this short paper by two news items appearing in Dominica News Online (DNO). The first one is entitled “Dominica Tackles Non Communicable Diseases”. The second is entitled “Youth Obesity Troubles Dominica Diabetes Association (DDA)”.

These articles are in fact a continuation of the anxiety expressed for some time now by the government (in fact all Caricom governments) about the strain imposed on the economy by the explosion of these diseases and the cost of dealing with them. The government thinks the problem is sufficiently acute that it has been organising keep -it sessions for civil servants.

In addition, a somewhat patchy campaign of education about the benefits of good nutrition and regular exercise for maintaining good health has been ongoing for some time. From the alarm expressed in the articles cited above it would seem that these exhortations seem to have had no effect on the rate of expansion of these diseases, especially diabetes.

The latest research on the causes of the cluster of diseases known collectively as the metabolic syndrome pinpoints the consumption of sugar as the major culprit. Dr. Robert Lustig, a paediatric endocrinologist at the university of California at San Francisco, in his book “Fat Chance, Beating the Odds Against Sugar, Processed Foods, Obesity and Disease” lays out very carefully the connection between the metabolism of sucrose (ordinary sugar) and fructose (the sugar found in fruits) by the body and shows how the manner of sugar metabolism leads directly to obesity, diabetes and cardiovascular impairment.

DNO readers can purchase the kindle version here, or if you prefer to read books on paper it can be ordered here as well.

If you prefer to listen to lectures you can listen to the one-and-a-half hour long lecture free of charge on Youtube at this location.

What you may ask; does diabetes and taxation policy have to do with each other. If the proposition that the overconsumption of sugar leads to the complex of diseases noted above is correct then tax policy has everything to do with diabetes as we will attempt to show.

In 2006, Dominica overhauled its tax structure and enhanced taxes on consumption by way of the Value added Tax (VAT). Cognisant of the fact that taxes on consumption are generally regressive (they impact a larger percentage of the incomes of the poor than better-off segments of society) the government decided to introduce a measure of progressiveness into the VAT by exempting certain food items on which the poor are thought to spend a high percentage of their income.

Sugar was considered one of the food items that met this criterion and was therefore made exempt from the VAT. Our high school economics teaches us that when the price of a good goes up the tendency is for its consumption to drop and vice versa. How far the consumption drops (or increases) depends on what is known as the price elasticity of demand. It is also known that with any class of goods such as food, the change in relative prices  among the goods in that class will induce a substitution effect. In other words, if tomatoes become more expensive relative to carrots, there will be a tendency  for consumers to eat more carrots and less tomatoes.

One way in which relative prices can be changed is via tax policy. In 2006, the tax regime on food changed the relative prices of different foods. Because sugar has no Value Added Tax its price relative to other food item was effectively lowered. Although we have no direct data as to whether sugar consumption increased and by how much as a result of the relative lowering of its price, we can be pretty certain that consumption of sugar will at the very least not have diminished (except for the growing number of diabetics who have been ordered by their doctors to cut the product out of their diet).

It is our view that the exemption of sugar from the VAT is an example where well-meaning tax policy leads to unintended negative impacts on health. In light of the alarm expressed in the two articles cited above and the scientific data, we suggest that the government should reverse its tax policy on sugar and begin to tax its consumption.

Since sugar is consumed in myriad ways including an ever increasing amounts of sugared beverages of all sorts, the administration might want to start by imposing a special levy on sugared drinks, including the so-called juice drinks.  The increase in the price of sugar should be accompanied with an aggressive campaign against the consumption of sugar similar to what was undertaken against the use of tobacco.

Here is link to a little experiment that demonstrates the amount of sugar in sugared drinks.

AS usual I will be happy to respond to your queries.


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  1. st.lucians needs to be educated about salt,sugar,butter,and oil...
    they need to know about the omega THREE...
    and stop blaming the PM...
    start eating healthy people of st.lucia,cut back on the salt and sugar ,if you over twenty five...nothing wrong with vat on salt and sugar they are killers... FROM DOMINICA...


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