[Ip-health] The WHO EWG's proposals for taxes to fund medical R&D
Malini Aisola
malini.aisola@keionline.org
Thu Jan 14 10:26:04 2010
http://keionline.org/node/749
The WHO EWG's proposals for taxes to fund medical R&D
January 14, 2010
by James Love
Some surprising taxes, and evidence of IFPMA lobbying
Next week the World Health Organization (WHO) will consider the
Executive Summary of the Report of the Expert Working Group on Research
and Development Financing. This document, formally identified as EB
126/6 Add.1 [1], includes consensus recommendations from 24 experts [2],
including the U.S. member, Mark Rohrbaugh from the NIH. Among the core
responsibilities of this panel was to recommend new sustainable ways to
generate funds for medical R&D. In its executive summary, the group
highlights "a new indirect tax (a consumer-based tax)" to generate
billions of dollars per year.
* a 10% tax on the arms trade market, which might net about US$ 5
billion per annum;
* digital tax or =E2=80=9Cbit=E2=80=9D tax: Internet traffic is huge =
and likely to
increase rapidly; this tax could yield tens of billions of US
dollars from a broad base of users;
* A tax on bank account transactions, modeled aftere a 0.38% levy
on paying bills online and major withdrawals, modeled after
Brazil=E2=80=99s now rejected financial transaction tax =E2=80=93 C=
ontribui=C3=A7=C3=A3o
Provis=C3=B3ria sobre Movimenta=C3=A7=C3=A3o ou Transmiss=C3=A3o de=
Valores e de
Cr=C3=A9ditos e Direitos de Natureza Financeira (CPMF).
* A tax on airline tickets, modeled after the UNITAID [3] airline
tax now used by several countries to fund treatments for AIDS.
In one background document that was obtained by the IFPMA and circulated
to its members, the digital tax on Internet users was predicted to raise
$2 billion per year, and was given the most favorable rating in terms of
being "most likely to work for health R&D." (Mary Moran, Comparative
Analysis of Innovative Financing Proposals for Health R&D [4], page 18).
We asked key members of the U.S. delegation to the WHO discussions if
the US indeed endorsed these recommendations, since they were presented
to the WHO EB as having the approval of all members of the EWG,
including the representative from the NIH. They seemed frankly surprised
at the question.
While the whole WHO EWG report is not yet public (except for a draft
version on Wikileaks that was distributed by the IFPMA), the WHO has
made several of the working papers of the EWG available, including a
report by the George Institute for International Health. According to
the George Institute paper [5], which was prepared for the EWG, the
taxes are described as follows:
FINANCING PROPOSALS
The following fundraising options have been put forward based on the
likelihood they can generate new funds for health R&D in a sustainable
way:
* A new indirect tax (a consumer based tax)
* Voluntary business and consumer contributions
* Taxation of repatriated pharmaceutical profits
* New donor funds for health R&D
A new indirect tax
Indirect taxes involve a small tax being imposed on specified products
or transactions. Typically the tax is paid by the consumer or user of
the product/transaction, collected by the retailer and forwarded to the
taxation authority. Once in place they are compulsory and offer varying
degrees of diversity depending on the tax. These mechanisms aim to raise
revenue and, in the cases of the tax on the arms trade and excise duties
on tobacco and alcohol, to discourage the (excess) consumption of a
particular product. In these cases there are likely to be positive
spill-overs in terms of health gains. The digital tax involves a charge
on traffic over the internet. It was first discussed in the 1990s and
various proponents have put forward different versions of this tax.
Examples include a tax of one US cent on every 100 e-mails of 10 KB
sent, a charge per specific number of email messages (eg 10 cents per
1000 messages), a charge per SMS message and a charge by the quantity of
information sent/received (eg for internet telephony and video). The key
element is a very low charge.
Performance
Fund-raising capacity and additionality: An indirect tax could
potentially raise very significant amounts of revenue:
* A 10% tax on the arms trade market might net about $5bn per
annum.
* Digital tax or =E2=80=98bit=E2=80=99 tax: Internet traffic is huge =
and likely to
increase rapidly; this tax could yield tens of billions from a
broad base of users.
* Brazil=E2=80=99s CPMF: a tax on bank account transactions, set at 0=
.38%
levied on paying bills online and major withdrawals, it was
raising an estimate $20bn per year and funding some 87% of the
Government key social protection programme =E2=80=93 Bolsa Familia,
before it was voted down. However, there is scope globally for
bank transactions taxes to be expanded.
* The airline tax has raised around $660m over 2 years (mostly
from France) this is expected to increase as more countries join
(e.g. Portugal in 2009)1. Possible total revenues could amount
to the low billions. At the end of 2008, Chile, C=C3=B4te d=E2=80=
=99Ivoire,
Democratic Republic of Congo, France, Madagascar, Mauritius,
Niger and the Republic of Korea had implemented the airline tax;
in addition Norway allocates part of its airline emissions tax
to UNITAID.
* Tobacco taxes: Low-income countries are estimated to raise
around $13.8bn in taxes on tobacco. Of 152 countries with
tobacco taxes in place the tax rate is less than 25% in around a
quarter of the countries. A 5-10% increase to the tax rate could
net $0.7-1.4bn per annum. A similar increase in developed
countries would net $5.5-11bn. Alcohol taxes are already
widespread.
While funding projections can be made, ultimately revenue will
depend on responses to price rises associated with the tax. Any
government decision to implement or expand one of these taxes
for the purposes of directing the revenue stream to developing
world health would result in additional funds.
In order to estimate the size of the funds that could
potentially be raised we take the example of the introduction of
a very low indirect digital tax, which could be estimated to
conservatively raise funds in the low billions per annum (US
$3bn).
Likelihood: There is a more obvious link between the source of
the funds and the purpose (health R&D) for the tobacco, alcohol
and arms trade related taxes. However, as the airline tax has
shown, such a link is not always necessary to appeal to both
politicians and consumers. An indirect tax like a type of
digital tax can be appealing to politicians and consumers who
accept a small tax across a broad base with an altruistic
purpose.
Operationality: Introducing a new tax or expanding an existing
tax may require legal changes, nationally and internationally,
depending on the tax, and ongoing regulation to ensure
compliance. A new global tax would take longer to implement than
expanding an existing tax within a country. A tax that is global
in scope allows for developing countries to contribute to
fundraising, and there is a willingness to do so as demonstrated
by the airline tax. This framework could be applied to a type of
digital tax.
As with the introduction of any tax there are trade-offs:
* There is only moderate certainty over revenue forecasts
as actual revenue will depend on the response of
providers and consumers to price rises associated with
the tax and scope of the tax. Furthermore, as seen with
the withdrawal of Brazil=E2=80=99s bank transaction tax the=
re
are occasions, although rare, when a tax is removed.
* Some of these taxes could potentially create perverse
incentives. For example, the tax on arms trade is likely
to result in an increase in illicit arms trading, (and
therefore reduce the size of revenue); an excessively
high tax on alcohol could encourage people to consume
illicit and often dangerous alcohol products. An arms
tax may have less political appeal than others as
governments are essentially taxing themselves.
* Achieving a wide geographical coverage by some of these
taxes internationally might be difficult as governments
might be resistant to introducing them (e.g. The US is a
notable omission from the airline tax citing problems
with the tax dimension, but they are trying to capture
the revenue through voluntary airline contributions
rather than a mandatory tax.)
* The digital tax has additional operational hurdles to
overcome, in that monitoring internet traffic in a
cost-effective manner in order to tax consumers might
prove to be a challenge. The digital tax could place a
high burden on companies that depend heavily on use of
the internet and sending large amounts of data over the
internet. However, this could be overcome by appropriate
scoping of the tax.
The George Institute report also considered the Brazil submission asking
for the taxation of repatriated pharmaceutical profits [6]. The IFPMA
[7] had access to an advance copy of the EWG draft texts, and also to
what the IFPMA described as "friendly" EWG members", and was able to
lobby against the pharmaceutical profits tax, which was not included in
the final EWG recommendations sent to the EB. Surprisingly, the tobacco
tax proposal was also dropped, while the taxes on arms shipments,
internet bits, consumer bank account transactions and airline tickets
were retained.
Judging from what is available from the WHO web site, the EWG's work on
all of the taxation proposals seemed shallow, and lacking in serious
analysis. But whatever the basis of the recommendations, they are now
before the WHO, having received approval from experts from 24 countries,
including the US.
It is also worth repeating, again and again, that the report to the WHO
EB demonstrates how the IFPMA used its access to the confidential
working drafts of the EWG to protect their profits -- in this specific
case, to eliminate consideration of a taxation proposal put forward by
Brazil to tax repatriated profits that flow from developing countries to
developed countries. Regardless of how one views the Brazil tax
proposal, it is clear that the IFPMA was simply acting as any lobby does
-- to penetrate a public process to protect its corporate interests.
That this happened in the EWG process not only says something about the
tax proposal, it raises doubts about the rest of the EWG proposals,
which as the IFPMA told its members, a in generally highly favorable to
the industry positions, particularly on topics such as the use of large
end prizes, intellectual property rights and the medical R&D treaty.
The following quotes are from the original Brazil proposal [8] for
taxing repatriated profits from the pharmaceutical industry:
[T]his proposal focus on a mechanism that would be based on a
fund sustained with resources from taxation on remittance of
profits of the pharmaceutical industry. This fund would be used
only for R&D on medicines and vaccines that address public
health needs of developing countries. The available resources
could be drawn upon by the pharmaceutical industry, including
the ones that paid the tax in the first place, in a partnership
with national public or private laboratories from developing
countries, on a public-private partnership fashion. Products
resulting from those R&D activities would be made available to
developing countries in accessible terms.
The innovation in such a system is related to the proposal of
raising a sustainable fund from the taxation of the activities
of pharmaceutical companies, which could in turn use those same
resources, together with partners from the developing world, to
R&D for diseases that affect those countries.
Not only developing countries would benefit from the outcomes of
such an endeavor but they would also be benefited from engaging
in the R&D activities and be able to build capacities from the
exchange of experiences and the transfer of technologies from
the pharmaceutical laboratories involved in the process.
Links:
[1] http://apps.who.int/gb/ebwha/pdf_files/EB126/B126_6Add1-en.pdf
[2] http://www.who.int/phi/R_Dfinancing/en/index.html
[3] http://www.unitaid.eu
[4]
http://keionline.org/sites/default/files/mmoran__analysis_financing_proposa=
ls.pdf
[5] http://www.who.int/entity/phi/CompreviewEWGDec09.doc
[6] http://www.who.int/phi/Brazil.pdf
[7] http://www.ifpma.org/
[8] http://keionline.org/sites/default/files/brazil_tax_proposal.pdf
[9] http://keionline.org/sites/default/files/CompreviewEWGDec09.doc
[10] http://keionline.org/sites/default/files/B126_6Add1-en.pdf
[11] http://keionline.org/sites/default/files/IFPMA_analysis_of_EWG.pdf
--
Malini Aisola
Knowledge Ecology International
1621 Connecticut Avenue NW, Suite 500, Washington DC 20009
malini.aisola@keionline.org|Tel: +1.202.332.2670|Fax: +1.202.332.2673