The New Economy of Sin Taxes & Public Health

As Morocco’s parliament returns to work this fall, the macroeconomic news is mostly good—particularly given the headwinds that, in different circumstances, could mean significant threats for Africa’s sixth largest economy. The September 2023 earthquake in the Haouz area of the Atlas Mountains and recurring droughts across the Maghreb have demonstrated both the importance of economic diversification and investment in infrastructure. Resilience seems to be the new normal in many economies across the globe in 2024.

As developing economies continue to grow and diversify, expect a renewed interest in government revenue. Taxes. Value added taxes (VAT) and consumption taxes have been a cornerstone of government revenue generation in the developing world, including Morocco. That trend will continue as the robust service sector—formal and informal—of the Moroccan economy expands.

The draft 2025 Finance Bill was discussed this week during a ministerial council session hosted by King Mohammad VI. The proposed legislation would see tax increases on a variety of products like sugary soda drinks, alcohol and beer as well as tobacco. So-called sin taxes. These proposed consumer consumption taxes would raise nearly $1.7 billion in revenue in 2025 and help fund a broad range of development initiatives that are part of Morocco’s New Development Model (NDM), now in its sixth year.

It is now common for tax policies to focus on consumer consumption products, items which often exact a heavy toll on both individual health and public funds. According to International Diabetes Federation data, the Middle East-North Africa region has the highest regional prevalence (16.2%) of diabetes and the second highest expected increase in the number of people with diabetes—nearly 136 million by 2045. 

In 2017, the UAE raised the price of tobacco products and caffeinated drinks significantly. The taxes were seen as an important source of revenue in the fast-growing Emirati service economy while also serving to combat the nation’s fast rising obesity and diabetes rates. 

Saudi Arabia, too, instituted large tax increases in 2017 on soft drinks and the tax levied on energy drinks was doubled. Research has demonstrated that sin taxes imposed on tobacco and alcohol use do indeed discourage the consumption of these substances, particularly tobacco use among those under 18 years old. It is also true that sin taxes are usually regressive in nature as they place a greater financial burden on lower income individuals.

But the public health benefits are often quite clear. In the United States, decades of rising tobacco taxes in most states led to a steady decline in in the percentage of adults who smoke or regularly use tobacco, from 45 percent in 1954 to just 12 percent in 2023. The average state cigarette tax is now about $2 per pack.

Increasingly, alcohol consumption, too, is coming under closer scrutiny by governments and public health researchers. Late last year, the World Health Organization (WHO) urged governments to increase taxes on alcoholic drinks and sugary beverages to counter the negative health effects of prolonged use of those products, namely certain cancers, heart disease and diabetes.

In 2026, Ireland will become the first country to require that health labels on all alcohol products must include warnings about the risks of developing cancer. Scotland recently increased the minimum unit price (MUP) on alcohol by 30% in part to combat a sharp rise in alcohol-related deaths over the past decade. Low-priced alcohol is believed to have played a major role in that increase.

Morocco’s proposed Finance Bill rightly includes tax increases on alcohol, beer and tobacco use to aid in the reduction of Morocco’s budget deficit and to fund priority programs. Similar tobacco wholesale and retail price increases were instituted in recent years with an important emphasis on enforcement. 

Economies modernize and change. So too should tax systems—even when the informal and unregulated economy plays a significant role in national development. Morocco’s government debt-to-GDP ratio is 68%, a common number in the region. France, by example, has a debt-to-GDP ratio of 109% which will require a significant program of austerity and tax increases in 2025. Egypt’s debt-to-GDP ratio is about 92%. 

The proposed taxes provide steady revenue to the state while serving as a reminder to citizens, in ways large and small, the importance of moderation, national development priorities and no less important, healthy living.