Ethical benefits of new taxes in UAE surpass fiscal gains

The UAE’s Federal Tax Authority’s decision to impose a tax of 100 per cent on tobacco and energy drinks, and 50 per cent on carbonated beverages will be applied from the fourth quarter of this year. The country’s move to diversify government revenues through a mix of value added tax (VAT) and excise duties on some consumer goods has a special significance in terms of achieving social objectives, and it goes beyond the perceived fiscal compulsions resulting from lower oil prices.

According to the World Health Organisation (Who) and the Tobacco Free Initiative, a 10 per cent price increase on a pack of cigarettes could reduce demand by around 4 per cent in high-income countries. This increases to about 5 per cent in low-and-middle-income countries. The Who report on the Global Tobacco Epidemic 2015 estimates that about six million people die every year from tobacco-related diseases. Estimates suggest that nearly 25 to 30 per cent of the UAE’s adult population smokes some form of tobacco, making them susceptible to serious health hazards.

The health risks of energy drinks and sugary drinks are well-documented. A Who report ‘Fiscal Policies for Diet and Prevention of Non-communicable Diseases’ suggests that taxing sugary drinks could lower consumption and reduce obesity, Type 2 diabetes and tooth decay — all of which are burdening the UAE’s health-care system.

Within indirect taxes, excise taxes are the most important. Excise duties on harmful products are used as a policy measure by governments across the world to restrict consumption. So the UAE move is aimed at just that.

The dual impact of revenue gains and longer-term reduction in health-care spend has its fiscal gains too.