In its first budget, the Pinarayi Vijayan-led Left government in Kerala introduced ‘fat tax’, a first in the country.
Finance Minister Thomas Isaac during his budget speech said that the ‘fat tax’ imposed on branded restaurants such as fast-food chains like McDonalds, Dominos, Pizza Hut, Subway will raise an estimated amount of Rs 10 crore.
This meant consumers eating junk food like pizza, burgers and tacos have to shell out another 14.5% tax on the total bill in addition to the existing VAT and other taxes.
While the budget speech failed to mention the rationale behind the government’s move, let’s take a look at why the fat tax is unlikely to have a positive impact.
1) Is there really an obesity threat?
Although there is no doubt that bad food choices (not only those bought from a multinational restaurant) leads to obesity, there could be several other reasons for it.
There is no clear data that shows that the obesity is a growing issue in Kerala.
Multiple media reports quote a National Family Health Survey which says that Kerala has the most number of obese children in the country only after Punjab is not to be found anywhere on the internet.
The NFHS IV has not yet released Kerala data and it is unclear how this particular statistic has been reported repeatedly.
2) Fast food is not big in Kerala anyway
Unlike neighboring states Karnataka or Tamil Nadu, Kerala is not big on multinational fast-food chains. Kochi which is the most cosmopolitan city in the state has only three McDonald stores and four KFC outlets compared to 42 KFC outlets in Bengaluru and 44 McDonald’s.
Although, Bengaluru is no doubt a much larger city when compared to Kochi, the number suggests how the proliferation of branded restaurants in Kerala is minimal.
3) The tax revenue is of little consequence
The ‘fat tax’ does not look like a decision taken to fill the coffers.
By the finance minister’s own admission, the estimated amount of tax revenue would be Rs 10 crore, which is quite an insignificant amount and no way helping the state’s debt burden.
Soon after the announcement, shares of companies which handles operations of Domino's Pizza, Dunkin' Donuts, and McDonald's restaurants lost more than 2% of their values on the BSE.
4) ‘Fat taxes’ simply do not work
In the past, some governments in countries like France, Hungary had imposed fat or sugar taxes with limited success.
Denmark withdrew its fat tax in November 12, just a year after it was introduced.
"The fat tax and the extension of the chocolate tax, the so-called sugar tax, has been criticized for increasing prices for consumers, increasing companies' administrative costs and putting Danish jobs at risk," the Danish tax ministry said while withdrawing the sugar and fat tax.
Even a European Union report on the same said that although taxes specifically “on sugar, salt or fat do cause reductions in consumption” they also result in consumers “going for cheaper products” to circumnavigate the tax.
5) What about oil dripping desi Kerala food?
Unlike Bihar which introduced a ‘luxury’ tax on samosas and sweets at the start of the year, Isaac mentioned that the new tax will only be levied upon food sold in ‘upscale restaurants’.
This meant that the Neyappam snack or Kerala’s famous banana chips or beef fry won’t be taxed.
"Anything in excess is unhealthy, which includes most traditional Indian savouries and sweets," said National Restaurant Association of India (NRAI) Secretary Rahul Singh told Economic Times.
"Otherwise, it is discriminatory. Just because you serve pizza and burger doesn't mean other people are serving healthy food," owner of a popular Kochi café told the BBC.
Put together all the factors and one thing is clear; the ‘Fat Tax’ is the genesis of some communist thinking.