Why the tax on NRT is ‘nudging’ us the wrong way

 

Not for the first time in this column, I stress this reality: money makes the world go round. This is true of most things, and it is true in the world of healthcare as well.

For example, those with the ability (or have private insurance coverage) can immediately proceed to obtain specialist care when they want it, rather than having to wait for a specialist appointment at a public health facility.

Ascertaining the impact of money on the behaviour of people has its own branch of science: behavioural economics.

Behavioural economics explores how economic strategies and incentives influence and change the behaviour of individuals and even communities.

One of the tools in the behavioural economics arsenal is ‘nudging’.

Simply put, nudging refers to the idea of using economic incentives to indirectly reinforce positive behaviour, and through this influence behaviour change within individuals and communities.

An example of this in Malaysia is the imposition of a tax of 40 sen per one litre for beverages containing more than 5g of sugar per 100ml and on fruit juices with 12g of sugar per 100 ml.

Since its introduction, interestingly, reports have shown that most manufacturers have already reconstituted most of their products to reduce the amount of sugar so that the price of their products have not needed to be increased.

Consumers end up consuming sugar-sweetened beverages with a lot less sugar, and in this manner, this ‘nudge’ has managed to bring about a positive health change.

One area in which behavioural economics has played a major role is in the area of tobacco control.

Price controls have been a major tool in controlling the use of tobacco products amongst individuals and the community at large on a global scale.

The increase in the price of tobacco products has played a big role in not enabling younger people to begin using these substances, and continues to play a role in ensuring they do not start.

On the other hand, however, ‘nudging’ is also required to ensure that those who are smoking are incentivised to try to quit.

As such, the costs associated with smoking cessation such as in purchasing and using smoking cessation products such as nicotine replacement therapies need to be set at affordable prices so that they can be accessed and utilised.

The primary tools available for smokers to quit are nicotine patches and nicotine chewing gum. These aids are utilised by smokers who quit as a substitute for the nicotine they obtain from tobacco products and enable them to be eased off the addiction over the long run.

Behavioural economic strategies would incentivise these products by keeping prices low, thus encouraging more people to use them, and through this, get more people to quit in line with government strategies which are aligned with the greater good.

Unfortunately, here’s where the Malaysian behavioural economic strategies stop making sense.

These NRT products are being taxed, and that too at rates which are far above the norm for medicinal products (which these products are).

Nicotine chewing gum is being subjected to an import duty of 15% and an additional sales tax of 5%; while the nicotine patch is subject to a sales tax of 10%.

These make the costs higher for these products – and have played no small part in disincentivising their use among the public for quitting smoking.

To make the reader understand why these duties and taxes make no sense, let me offer two distinct comparisons.

First, all medicinal products such as pharmaceuticals are subject to 0% import duty and 0% sales tax.

This ensures that prices are low (in the sense that they have no additional tax on them) and these products are available to be utilised by those individuals who are ill and need them.

Nicotine addiction has been categorised for the longest time as being a medical condition, and thus the medications for treating this condition need to be zero-rated in order to make them affordable and accessible.

Removing the import duty and sales taxes on NRT products is really just righting a wrong that has been ongoing for so long.

Ironically, the other comparison put forward to contextualise the NRT problem is its most direct ‘competitor’, vape.

Proponents of vape expound its utility in ‘reducing the harm of smoking’ and call for individuals to quit smoking by turning to vape as an alternative (despite the continuing and clear lack of effective evidence on this).

Even though the scientific evidence pertaining to this remains mixed, the economic ‘nudge’ seems clear enough.

Vaping products do not have an import duty imposed on them, and although there is an excise duty planned for vape at a rate of RM0.40/ml, this is for non-nicotine containing products and thus its efficacy in encouraging smoking cessation is questionable, at best.

To sum up, NRT which are medical products are being subjected to an import duty and sales tax which is currently not being imposed on other medical products at all.

Worse, they seem to be subjected to similar if not higher percentages of tax compared to other purported smoking cessation devices such as vape which are still of questionable efficacy.

Currently, the economic strategy in place sends mixed signals. We are disincentivising smokers and not empowering them to quit; while at the same time the government is consistently trying to get smokers to quit.

Zero-rating the duties and taxes imposed on NRT medications is a key step in ensuring more smokers can get on the quit wagon. Only then will this be a ‘nudge’ in the right direction. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.