Increasing the excise taxes on tobacco, alcohol and sugar-sweetened beverages presents African governments with a strategic opportunity to reclaim some fiscal sovereignty in the face of collapsing donor support, according to a new report on health financing compiled by Vital Strategies.
The Research Unit on the Economics of Excisable Products, based at the University of Cape Town, and Economics for Health, a research unit based at Johns Hopkins University in the US, are co-authors of the report.
Africa stands at a crossroads. The continent is facing a convergence of crises — shrinking donor aid, fragile domestic investment and escalating climate and health shocks, all of which are placing enormous strain on health systems. Yet amid these challenges lies a powerful, largely underutilised strategy: health taxes. Often called excise taxes, these have two main functions: they reduce consumption of these goods, and they raise government tax revenue.
Tobacco, alcohol and sugar-sweetened beverages are leading causes of Africa’s burden of preventable disease. Tobacco use alone claims 200,000 lives annually. Alcohol is responsible for more than 300,000 deaths each year, and sugar-sweetened beverages are fuelling a surge in noncommunicable diseases such as diabetes and heart disease. These products not only harm health, but impose enormous economic costs through lost productivity and expensive treatment costs.
Tobacco, alcohol and sugar-sweetened beverages are leading causes of Africa’s burden of preventable disease.
The good news is that most African countries have these taxes in place, but the bad news is they have been implemented at levels that are insufficient to significantly influence consumption patterns or generate substantial revenue. For example, the median tax share of tobacco prices in Africa is just 41%, far below the 75% target recommended by the World Health Organisation.
While 80% of African countries tax sugar-sweetened beverages, the rates are low and the designs are often weak. The design of alcohol taxes in many countries is similarly weak. Many countries do not base the tax on alcohol content and therefore do not create an incentive for alcohol producers to reduce the alcohol content in the product.
This structure also drives up the prices of inexpensive products. Remarkably, relatively few countries regularly adjust their health tax rates for inflation and/or real income growth, which is an international best practice. Governments can change this situation by improving tax structures and raising rates.
This is not a failure of evidence — it is a failure of political will. Industry interference in policymaking is also a major problem. Corporations misrepresent the risks of job losses and illicit trade to resist reforms. But their claims do not hold up to scrutiny. Health taxes are employment-neutral or even job-positive, as consumers shift their spending to more labour-intensive sectors when they consume less tobacco, alcohol and sugar-sweetened beverages.
Illicit trade, sadly a scourge in SA’s cigarette market, can be managed effectively through enforcement tools such as track-and-trace systems. In the past decade many countries, including Brazil, Ecuador, Kenya and the Philippines, have successfully implemented track-and-trace systems to positive effect for tax revenues and public health.
For policymakers the imperative is clear: health taxes are not just a public health tool, they are a sound fiscal strategy. And this will have enormous benefits for the people they serve. If they are well-designed and aligned with health objectives, these taxes generate substantial domestic revenue, even as consumption declines.
An often-heard criticism against increasing health taxes is that these increases fall disproportionately on low-income households, in other words that they are regressive. There is no evidence for this.
According to a report by the Task Force on Fiscal Policy for Health, cited in the report, a tax-induced 50% price increase on tobacco, alcohol and sugary drinks could raise $2.1-trillion over five years for low- and middle-income countries — equivalent to 40% of their total health spending. This is good for African economies and the social protections they can enable as a whole.
An often-heard criticism against increasing health taxes is that these increases fall disproportionately on low-income households, in other words that they are regressive. There is no evidence for this. On the contrary, the use of these products is regressive because they carry a far higher health burden to this already disadvantaged group, further worsening health inequalities.
Increasing health taxes is progressive on a population level because lower-income households are more responsive to price increases and will reduce their consumption of these unhealthy products by a greater proportion when faced with tax-induced price increases. Reducing consumption improves health outcomes and frees up income for essential needs.
In countries where earmarking of tax revenue is feasible, these tax revenues can be directed to programmes that benefit vulnerable populations, creating a beneficial cycle of equity and wellbeing. Furthermore, a small portion of the new tax revenues can be spent on programmes to help people struggling most to consume less or quit.
African governments have a valuable opportunity to strengthen public health and fiscal resilience by implementing well-designed health taxes, and increasing their rates. The evidence supporting these measures is robust, and practical tools are readily available. By consistently increasing tax rates, enhancing enforcement mechanisms and adopting policies that are resistant to industry influence, countries can make meaningful progress.
Health taxes have the potential to save lives, support economic development and reinforce health systems. As external funding declines these domestic strategies offer a sustainable path forward. Now is an opportune moment to consider thoughtful reforms that align with national health and development goals.
• Van Walbeek is director, and Vellios chief research officer, at the University of Cape Town's research unit on the economics of excisable products; Drope director of economics for health at Johns Hopkins University; and Etiebet president and CEO at Vital Strategies.
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