Health Taxes and Trade Law

Multilateral, regional and bilateral agreements establish the rules governing international trade. This chapter examines the interplay between trade obligations and the rights states retain to impose domestic taxes for health purposes. Customs and monetary unions can establish very specific rules governing domestic taxation, such as through harmonised excise or sales taxes, or harmonised approaches to tax administration. These agreements set out the most detailed international obligations concerning health taxes, but are not described or compared in detail in this chapter as they are particularistic. This chapter focuses on World Trade Organization (WTO) law, which places relatively clear limits on the use of customs duties (whether used for health or other purposes) and establishes principles of nondiscrimination. Disputes can arise where it is alleged that the effect of a tax measure discriminates against imported products as compared to domestic products. The case law as a whole suggests that even where a health tax has the effect of favouring domestic products, it may still be lawful under trade agreements, so long as that effect is justifiable in health terms. This will be the case, for example, where any differential treatment of product categories is justified by reference to differences in the risks they pose to health. This requires care in establishing the tax base and in setting tax rates to ensure that these are related to a health objective and justifiable by reference to that objective. Overall, international trade rules protect freedom to adopt and implement domestic tax measures for health purposes.