A/67/302
16. The right to health approach to health financing requires that taxation to fund
health be levied progressively in order to ensure equitable revenue generation.
Progressive taxation requires taxpayers to contribute according to their ability to
pay. For example, progressive income taxation requires wealthy taxpayers to
contribute a higher percentage of their income than poorer taxpayers. In contrast,
regressive taxation involves greater proportional contributions from those with less
financial resources than from wealthier taxpayers. Regressive taxation is thus an
inequitable financing mechanism for health and not in accordance with the right to
health.
17. Many States utilize consumption taxes, such as excise and valued-added taxes
(VAT), to raise general revenue and provide funds for health. VAT has been adopted
in close to 140 States and now accounts for substantial proportions of revenue
collection in many States, particularly in the developing world. 5 Some States have
experienced success in setting aside specific portions of revenue raised from VAT
for spending on health. 6 The so-called sin taxes — excise taxes levied on socially
harmful goods such as alcohol, junk foods or tobacco — are also used to raise funds
for health, and may be specifically earmarked for health spending. Sin taxes may
serve a secondary purpose of discouraging unhealthy behaviours by raising the cost
of consumption, which may promote overall public health in some circumstances. 7
18. Under the right to health, consumption taxes must not disproportionately
burden the poor. However, VAT may operate regressively, with the poor spending
larger portions of their income on VAT than the wealthy. 8 Raising the threshold for
profits below which enterprises are not subject to VAT and distinguishing between
luxury and necessity goods has been shown to increase the progressivity of VAT. 9
Sin taxes may also be regressive 10 and should be applied proportionately so that less
expensive products used by the poor are taxed less than more expensive products
used by the wealthy. Attention must also be paid to the financial impact sin taxes
have on poor communities, who may purchase taxed products with greater
frequency. VAT, sin taxes and other forms of consumption taxes that are primarily
regressive are not in accordance with the obligation of States to respect the right to
health.
19. International tax competition has proliferated as a result of globalization and
the increasing mobility of capital and its corresponding elasticity in response to
taxation. Tax competition triggers a race to the bottom, wherein States attempt to
__________________
5
6
7
8
9
10
8
Michael Keen, “What Do (and Don’t) We Know about the Value Added Tax? A Review of
Richard M. Bird and Pierre-Pascal Gendron’s The VAT in Developing and Transitional
Countries”, Journal of Economic Literature, vol. 47, issue 1, 2009, p. 159.
Ghana and Chile have set aside 2.5 and 1 per cent, respectively, of revenues from value-added
taxes to fund health: WHO, Health Systems Financing: The path to universal coverage (Geneva,
2010), p. 27.
See WHO, Regional Office for South-East Asia, Tobacco Taxation and Innovative Health-care
Financing (New Delhi, 2012).
Nahida Faridy and Tapan Sarker, “Who really pays Value Added Tax (VAT) in developing
countries? Empirical evidence from Bangladesh”, International Journal of Modeling and
Optimization, vol. 11 (2011); L. Sekwati and Brothers W. Malema, “Potential Impact of the
Increase in VAT on Poor Households in Botswana”, International Journal of Economics and
Research, vol. 2, issue 1 (2011).
Nahida Faridy and Tapan Sarker, p. 194.
Christopher Snowdon, “The Wages of Sin Taxes”, Adam Smith Institute (London, 2012),
pp. 51-54.
12-46101