Monday Series · Health Taxes 101

Health Taxes 101 | Part 1: What Is a Health Tax?

Karambu Muthaura · 26 October 2026

Can a tax actually improve your health?

When most people hear the word tax, they think about money leaving their pockets and entering government coffers. Taxes pay for roads, schools, hospitals and other public services. That is what we generally understand taxes to do.

But what if a tax could do something else? What if it could influence the choices we make, discourage harmful consumption and help prevent illness before it occurs?

That is the thinking behind health taxes.

Health taxes are not a new invention. Governments have taxed products such as tobacco and alcohol for centuries, often primarily to raise revenue. What has evolved is the deliberate use of taxation as a public health policy instrument.

In this first instalment of Health Taxes 101, we explore what health taxes are, how they work and why they matter, particularly for African countries facing growing healthcare needs and competing demands on public resources.

So, what exactly is a health tax?

Put simply, a health tax is a tax imposed on a product whose consumption is associated with harmful health outcomes, with the objective of discouraging consumption and improving public health.

The World Health Organization (WHO) identifies three major product categories commonly targeted by health taxes:

Tobacco products: Associated with cancer, cardiovascular diseases, respiratory illnesses and other serious health conditions.

Alcoholic beverages: Associated with liver disease, certain cancers, dependence, injuries and other health and social harms.

Sugar-sweetened beverages: Associated with excessive sugar consumption, weight gain, type 2 diabetes and dental problems.

The idea is straightforward: when the price of a product increases, people generally buy less of it than they otherwise would.

This is particularly important for products whose consumption creates health risks not only for individuals but also for families, communities and society.

How does a health tax work?

Imagine that a packet of cigarettes sells for KSh 200.

The government increases the excise duty, and the retail price rises to KSh 250, assuming the tax increase is passed on to consumers.

Some smokers may reduce the number of cigarettes they buy. Others may decide to quit. Young people considering taking up smoking may be discouraged by the higher cost.

Not everyone will respond in the same way. Some consumers may continue purchasing the product despite the higher price. Nevertheless, the overall effect can be reduced consumption across the population.

Economists call this price responsiveness, commonly measured through price elasticity of demand.

Health taxes therefore work through a combination of price, affordability and consumer behaviour.

But there is an important distinction: a product becoming more expensive does not necessarily mean it is becoming less affordable.

If incomes and general prices are also increasing, a product may remain just as affordable as before. This is why effective health tax policy must consider inflation, income growth and regular tax adjustments.

A health tax is not simply about increasing a tax rate. It is about ensuring that the tax meaningfully influences affordability and consumption.

Is a health tax different from excise duty?

This is where an important distinction arises.

Excise duty is a tax imposed on specified goods and, in some jurisdictions, services. Governments use excise duties for several reasons, including raising revenue, influencing consumption and addressing social or environmental costs.

Not every excise duty is a health tax.

For example, Kenya imposes excise duty on products and services that are not necessarily taxed because of their health effects.

However, excise duty on tobacco, alcohol and sugar-sweetened beverages can serve as a health tax when its design supports public health objectives.

The distinction is therefore not necessarily in the name of the tax, but in its purpose, structure and effects.

A country may collect substantial excise revenue from tobacco while failing to reduce its affordability. From a revenue perspective, the tax may appear successful. From a public health perspective, its performance may be less impressive.

This is why we must assess health taxes against more than revenue collections alone.

Why not simply ban harmful products?

It is a reasonable question.

Taxation is one of several tools available to governments. Others include age restrictions, advertising controls, smoke-free environments, product regulation, public education and restrictions on availability.

Each intervention serves a different purpose.

Health taxes help influence consumption across an entire population without necessarily prohibiting the sale of the product.

Importantly, taxation works best when combined with other public health measures. Higher tobacco taxes, for example, can reinforce cessation services, advertising restrictions and smoke-free policies.

Taxation is powerful, but it is not a substitute for comprehensive public health policy.

What happens to the money collected?

One of the most interesting features of health taxes is that they can achieve two objectives simultaneously.

First, they can reduce consumption of harmful products.

Second, they generate government revenue.

That revenue can support public services, including healthcare, education and social protection.

However, there is a common misconception worth addressing: revenue from a health tax does not automatically go to the health sector.

In many countries, including Kenya, ordinary tax revenue generally goes into the government’s consolidated public revenue arrangements unless a specific legal framework provides otherwise.

Some countries establish dedicated arrangements to channel certain tax revenues towards health programmes. This is known as earmarking.

Whether revenue is earmarked or not, the central public health objective remains reducing harmful consumption.

In fact, a health tax should not be judged unsuccessful simply because consumption declines. That decline may be precisely the outcome the policy was designed to achieve.

Why are health taxes important for Africa?

African countries face a difficult combination of challenges.

Health systems must continue responding to infectious diseases while also addressing the growing burden of noncommunicable diseases such as cancer, diabetes and cardiovascular disease.

At the same time, governments face pressure to raise domestic revenue and finance essential public services.

Health taxes offer an opportunity to address both challenges.

They can help prevent avoidable illness while generating revenue that strengthens public finances.

But there are legitimate policy questions that must be considered.

How will the tax affect lower-income households? Will consumers switch to cheaper or illicit products? Can the tax administration enforce the measure effectively? Are affordable healthier alternatives available?

These are not reasons to abandon health taxes. They are reasons to design and administer them carefully.

For Africa, the discussion must therefore go beyond adopting international recommendations. Countries must develop policies that respond to their economic realities, institutional capacity and public health priorities.

A growing global conversation

In July 2025, WHO launched its 3 by 35 Initiative, encouraging countries to increase the real prices of tobacco, alcohol and sugary drinks by at least 50% by 2035 through taxation.

The initiative reflects increasing recognition that fiscal policy can play a major role in disease prevention and domestic resource mobilisation.

For African governments, it also raises an important question: are our tax systems designed merely to collect revenue from harmful products, or are they deliberately structured to reduce the harm those products cause?

The answer matters.

Three things to remember

1. Health taxes are about health, not just revenue. Their primary public health purpose is to reduce harmful consumption by influencing prices and affordability.

1. Not every excise duty is a health tax. What matters is whether the tax targets a health-harming product and is designed to support public health outcomes.

1. Good tax design matters. The rate, structure, inflation adjustments, administration and supporting policies all influence whether a health tax achieves its objectives.

Key terms explained

Health tax: A tax on a health-harming product intended to discourage consumption and improve public health

Excise duty: A selective tax imposed on specified goods or services

Price elasticity of demand: A measure of how much demand changes when a product’s price changes

Affordability: How easily a consumer can purchase a product relative to income and prices

Earmarking: Setting aside revenue for a specified public purpose

Noncommunicable diseases (NCDs): Diseases such as cancer, diabetes and cardiovascular disease that are not transmitted from person to person

The conversation continues

Health taxes sit at the intersection of taxation, economics, public health and politics. Understanding them requires looking beyond the amount of money collected and asking what the tax is actually achieving.

In the coming instalments of Health Taxes 101, we will unpack these questions, examine the evidence and explore what effective health taxation means for Kenya and the wider African continent.

Here is a question to leave you with:

If a tax raises billions in revenue but does little to reduce harmful consumption, can we really call it a successful health tax?

The Foresight Perspective is a knowledge and policy publication of Foresight Advisory Africa, offering evidence-based analysis and practical insights on taxation, public policy and development across Africa.

References

WHO, Health taxes

World Bank, Health Taxes

WHO, 3 by 35 Initiative

WHO, Fiscal policies to promote healthy diets: WHO guideline (2024)

Constitution of Kenya, Article 206: Consolidated Fund and other public funds

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