To boost revenues amid dropping oil and gas prices and at the same time tackle the country’s rising obesity rates, Qatar may want to consider introducing a tax on unhealthy food, a major accounting firm has said.
In a recent report on Qatar’s economy, PwC mentioned the strategy as a method to lessen the government’s reliance on hydrocarbon revenues, and also suggested other ways of “shaping incentives around key focus areas.”
Shifting consumption patterns through taxation has long been a favored policy tool by economists and politicians alike. Among the most common examples are tobacco taxes that are intended to reduce smoking rates by making the habit more expensive.
More recently, policy makers and health advocates abroad have turned their attention to using so-called “sin taxes” to discourage consumption of sugar-laden drinks and food to combat rising obesity rates.
In November, residents of a city in California became the first in the US to vote for a levy on soda, sugar-sweetening juices as well as sports and energy drinks, among other beverages.
PwC picked up on this trend in its report, offering it as an example of how Qatar’s government could diversify its income sources:
“By shaping incentives to reduce consumption of unhealthy foods by introduction of new taxations the government can support its 2030 vision of a sustainable healthy society, while also raising non-hydrocarbon revenues.”
Such measures are generally opposed by beverage companies, which stand to lose sales. In fighting against sugar taxes in the US, industry organizations have argued that consumers should be free to drink the beverage of their choice without sanctions.
While PwC did not explore or discuss the concept in detail, a tax on unhealthy foods in Qatar is a new suggestion in a nation grappling with one of the highest rates of obesity in the world.
Like many countries, Qatar’s efforts at addressing the issue have so far been focused on public education and encouragement for its residents to become active through initiatives such as National Sports Day.
However, in one of the latest illustrations of the rising problem, officials at Hamad Medical Corp. told Al Sharq newspaper this month that they conducted 900 bariatric surgeries in 2014, a 55 percent increase over the previous year, the Gulf Times reported.
While the effectiveness of taxes on unhealthy foods in fighting obesity remains to be seen, such measures are almost guaranteed to raise revenues for the government.
PwC notes that Qatar has set a goal to cover all its government expenses with non-hydrocarbon revenues by 2020.
Progress toward meeting this target has been limited, the company said, and the recent plunge in oil prices has added a new sense urgency to finding other revenue streams.
Over the next two years, PwC estimates a gap of $62.5bn between total government spending and revenues not linked to oil and gas production.
Meanwhile, in its most recent economic outlook report, Qatar’s Ministry of Development Planning and Statistics highlighted this challenge:
“Oil and gas resources are exhaustible and Qatar will one day have to look to other sources of income to meet its needs.”
At the same time, while consumption taxes were previously discussed within the GCC, the political appetite for such measures faded in the aftermath of the Arab Spring as many governments sought social stability by increasing financial benefits to citizens.
However, recent volatility in energy markets has prompted some financial experts to call on Gulf countries to revisit the idea.
According to the Qatar Central Bank, oil and gas revenues accounted for 56.3 percent, or QR195.2 billion, of the government’s revenues in its 2013-14 fiscal year. That was followed by investment income – which shot up due to accounting changes at Qatar Petroleum – at QR102.9 billion, or 29.7 percent.
Fees and various taxes declined by more than one-quarter to QR48.5 billion, or 14 percent of government revenues.