Health taxes from a European perspective

A growing body of evidence links the consumption of high fat, sugar, or salt (HFSS) foods to  obesity and non-communicable diseases (NCDs) such as cardiovascular diseases, diabetes and cancer. With over 100 million Europeans affected, many Member States have introduced or reformed taxes to reduce the consumption of these products. Together with WIFO and Erasmus University Rotterdam, Ecorys researched the effects of existing HFSS taxes and explored the potential for a harmonised EU tax for HFSS foods and sugar-sweetened beverages (SSBs).

Background

The momentum for taxing high in fat, salt and sugar (HFSS) products is growing across the EU, with 12 Member States and Catalonia (Spain) having implemented some form of HFSS taxation. Several other Member States are currently considering similar measures. As HFSS taxation is still relatively new and many Member States are in the process of developing their tax frameworks, the European Commission (DG TAXUD) aims to support this development by providing a solid foundation.

Ecorys supported DG TAXUD in their efforts by conducting a study on this topic. The aim of our study was to support initial discussions with EU Member States on advancing HFSS taxation more broadly, and sugar-sweetened beverage (SSB) taxes in particular, within a potential European framework.

Our study followed a threefold approach. Firstly, we explored the effects of existing HFSS taxes in EU Member States between 2009 to 2021. Secondly, we examined the potential and feasibility of establishing an EU harmonised tax framework for HFSS products Thirdly and finally, we assessed whether an EU minimum level of harmonisation for a targeted SSB tax would add value.

In contrast to several earlier studies carried out at a European level, this research was based on quantitative analyses and simulations. It was explorative in nature and combined various methodological approaches. The study included in-depth case studies from Belgium, Denmark, France and Poland.

Key findings

Experiences collected from Member States show that HFSS taxes can be considered a potentially effective policy instrument for Member States that wish to pursue health policy goals. However, in order to be truly effective, the following key design features must be taken into account:

• HFSS taxes should be introduced at central government level.
• Tax rates should not be at very low levels as the resulting change in consumer behaviour and associated health benefits might be too small to be identified.
• HFSS taxes should be nutrient- and not product-based.
• After the announcement of the introduction or the amendment of a HFSS tax, businesses should be allowed a transition period to respond through product reformulation before the tax is actually implemented.
• Tax schedules should be tiered or progressive according to the targeted nutrient content, with a threshold below which products are tax-free.
• HFSS taxes should be implemented in the form of specific excise taxes (not ad valorem taxes).
• HFSS taxes should focus on SSBs first of all, as these are easier to implement than other HFSS taxes and they are less vulnerable to definitional issues and potential legal challenges.
• The scope of SSB taxes should be drinks with free and added sugar, while the tax rate should be defined based on the amount of total sugar.
• Exemptions for small independent producers up to a certain threshold should be considered, because the compliance costs and tax burden is likely to be disproportionate for the smallest producers.
• HFSS tax schemes should be developed jointly by tax and health ministries and communicated as a health instrument and should be evidence-based, and regularly evaluated against measurable (intermediate) goals.
• HFSS taxes should be part of a broader range of measures including efforts to restrict the marketing, advertising and promotion of such products and to increase consumer awareness, through food labelling and education.
• Excise taxes on HFSS products should be prioritised over initiatives related to reducing VAT on healthy food products.

Additionally, this study shows that better alignment of national tax regimes through coordination or a minimum level of harmonisation provides several benefits, such as reduction or prevention of market fragmentation and the creation of a level playing field.

Our conclusions contribute to the growing body of knowledge on the implementation and harmonisation of HFSS taxes in EU Member states, and specifically provide key design features for DG TAXUD for effective implementation of such taxes.

For more information, read the full report here. The Annex can be found here.