Fat Tax: A good beginning or a misfire?

Fat Tax: A good beginning or a misfire?

A study published in the medical journal Lancet in 2014 says that India is only behind the United States of America and China in the global hazard list of top ten countries with the highest number of obese people.

I think this study caught attention of the Kerala government a few days back!! And we almost have a first "fat tax" in India!!

Kerala’s finance minister TM Thomas Issac proposed a "fat tax" of 14.5 % on food articles like burgers, pizzas, pasta, doughnuts and sandwiches sold at quick delivery chains and other branded restaurants in the maiden Budget.

It seems like an attempt to regulate the junk food habits of the younger generation in the state. But the fact that there are few such outlets in Kerala, despite being the second most urbanized state in the country, makes one wonder if it would really make much of a difference.

In layman’s terms, the "fat tax" would raise the cost of a medium chicken pizza from rupees 350 to 400. It may not affect more than 90 % of Keralites as people in the state are spoilt for choice when it comes to eating out.

Kerala happens to be home to the second largest population of obese people in India behind Punjab, and just ahead of Delhi with 17.8 % of men and 28.1 % of women reporting a Body Mass Index (BMI) above 25 and this would have to be checked sooner than later.

Industry viewpoint and affected brands

"The move is business-unfriendly. It calls out the organised, eating out sector. We cannot pass the burden entirely to consumers," Pizza Hut managing director Unnat Varma said. 

Industry estimates suggest there are 50-60 outlets of organised fast-food restaurant chains in Kerala, including global brands McDonald's, Burger King, Pizza Hut, Domino's Pizza and Subway. 

Shares of Jubilant Food Works, which has the master franchise rights for US chain Domino's Pizza and Dunkin' Donuts, and Westlife Development, the operator of McDonald's restaurants in the south and west, lost more than 2 % each on the BSE after the news was out.

Who bears the burden?

Depends !!

It's a tax on multinationals, and not one that is genuinely aimed at curtailing the intake of fat.

The tax clearly singles out multinational brands. What about local Indian brands — some of their products are that much unhealthier and many do not follow basic hygiene standards.

Executives at Yum Restaurants, which has franchise rights for Pizza Hut and KFC, said the tax burden would be passed on to consumers selectively though the firm would try to mitigate the impact. However, G Gopinath, president of the Approved and Classified Hotels of Kerala which has 900 hotel members said “We cannot pass it on to the consumers; we have to accept it as another regular expense.”

Benefit to government

The government expects to raise Rs. 10 crore annually through the new cess.

So what's your take on this new "Fat Tax"??