The Role of Health-Related Taxation in Reducing NCD’s among Sri Lankan Population

Abstract

Non-communicable Diseases (NCDs) are a major health burden in Sri Lanka, with significant adverse impacts on labour force participation and productivity, resulting in reduced GDP, which in turn affects savings and taxation in the economy. Health related taxation is one of the measures that can address this issue by governments in their fiscal policies to manage over-consumption to address adverse health impacts. This paper aims to examine the economic impact of health-based taxation in reducing health expenditure and Non-Communicable Diseases in Sri Lanka specially focusing on tobacco, alcohol, and Sugar-Sweetened Beverages. Though Sri Lanka has imposed taxes on these products over the past decades, there is a lack of studies on the economic impacts of health-based taxation. Therefore, this paper examines the impact of tax policy approaches on encouraging/promoting healthier choices and reducing NCDs in order to lower the healthcare costs in the country. The study is motivated by the growing challenges of epidemiological transition and the potential of health based taxation on economic dimensions in Sri Lanka. This study uses a quantitative research design including correlation and multiple regression modelling to investigate the long-term relationship between taxation of sugar-sweetened beverages (SSBs), Tobacco (TOB), and Alcohol (LIQ), and disability-adjusted life years due to NCDs (DALY_NCDs) including several control variables during the period of 2017-2022. The findings reveal that higher GDP per capita growth and improved literacy rates are strongly associated with reduced DALY_NCDs, underscoring the crucial role of economic development and education in enhancing public health outcomes. However, the fiscal policy variables, specifically taxes on sugar-sweetened beverages and tobacco, surprisingly exhibit a positive relationship with DALY_NCDs, suggesting that these taxes may be ineffective or even counterproductive due to potential substitution effects or issues with tax design and enforcement. These funds can be used to improve the healthcare system, enhance access to healthcare services, and promote preventive measures to reduce the burden of NCDs. These insights provide valuable contributions to the ongoing discourse on health-based taxation policies and their economic repercussions, offering potential avenues for policy refinement and optimization.