An Indian state has introduced a “fat tax” on fast food restaurants

At an extra cost.
At an extra cost.
Image: Reuters/Danish Siddiqui
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The southern Indian state of Kerala may be campaigning to become the healthiest region in the country.

After an alcohol ban, Kerala today (July 8) proposed a “fat tax” on restaurants that sell fast foods like burgers, pizzas, and doughnuts. In a first of its kind move in India, Kerala plans to charge a 14.5% tax fast food sold by chains like McDonald’s and Domino’s, expecting to raise Rs10 crore annually.

“We will need to study the details of the budget proposals made by the finance minister in the Kerala legislative assembly today before commenting,” a spokesperson  for McDonald’s (west and south India) said in a statement.

Several cities have in the past contemplated “fat tax” to control obesity levels. A May 2016 study by the British Medical Journal said that a tax on unhealthy food and beverages could slow the rising rates of obesity in the same way as taxing cigarettes leads to decrease in the number of smokers.

It’s debatable how effective the proposed “fat tax” in Kerala would be. The state stood second in India in child obesity in 2015, but fast food is not particularly popular. The state has only a few such restaurants—seven McDonald’s outlets and nine Domino’s—but this decision could lead other states to consider such a tax, experts said.

“Although the number of stores in Kerala are quite low, still this may lead to copycat actions from other states. Hence (it is) sentimentally negative for QSRs (quick service restaurants) if it is applicable,” said Abneesh Roy, senior vice president, institutional equities at brokerage firm Edelweiss Securities.

The Kerala government said that fast food restaurants could pass on the burden of the new tax to consumers if they wished. But this could hurt sales. Fast food retailers are already losing out to new gourmet options, standalone restaurants, food trucks and food festivals.

Taxing indulgences

The current ruling Bhartiya Janata Party (BJP) last year said it was considering imposing a “sin tax” on sugary carbonated drinks that would be as high as 40%.  In response, some of the world’s biggest beverage companies threatened to partially close factories.

Indian states are not after fast food only. In January, the northern Indian state of Bihar had announced a 13.5% luxury tax on samosa, a humble fried street snack which is very popular in India. Bihar also charges luxury tax on sweets that cost more than Rs500 per kg.

Soda taxes have become a rallying cry for those fighting obesity levels worldwide. In the US, Philadelphia recently became the first major city in the US to levy a soda tax.