Things to know about Sin Tax

Sin Tax refers to a tax levied on all products and consumer goods known as vices or unhealthy for social growth and consumption of which may cause negative externalities. Sin Tax is thus a subtle way to discourage people from participating in such activities without implementing as complete ban on them. The tax forms a huge source of revenue to the government.

Items that may come under Sin Tax

Sin Tax is added to items like alcohol, cigarettes, gambling, non-luxury products etc. In case of individual states, they are the foremost taxes suggested by experts to plug the budgetary deficits. The tax leads to a win-win situation for the state government as it contributes to the revenue and also promotes healthy living among the people. Many countries levy such taxes to finance specific projects. Some countries impose very heavy sin taxes while some Muslim nations have put a complete ban on alcoholic products.

Advantages of Sin Tax

There are some activities which are an apparent burden on civilised society due to their many negative manifestations. Tobacco is highly consumed in India and as per a Public Health Foundation Report of India 2011, it cost the economy $1 trillion to deal with tobacco related diseases for age-group 35-69 years. Such figures usually trigger calls for heavy taxes on such items. These taxes thus find easy acceptance by Opposition in the legislatures. Thus, it can be said that this tax promotes healthy societies. Sin tax also finds public acceptance as the products are usually consumed for entertainment purposes and public understands the ill-effects and dangers of the same and hence gives moral approval to the same. People are encouraged to change their behaviours and reduce the intake of such products. Lastly, it adds considerable revenue in government’s kitty. Revenues so generated by these taxes contribute to fulfil many social and economic goals.

Disadvantages of Sin Tax

It is seen that consumers who want to avoid sin-tax often switch to cheaper and more harmful variants of the taxed products which can significantly deteriorate their health.  Thus, it is suggested that appropriate regulatory measures should accompany the taxes. They have also led to proliferation of smuggling activities and black markets. It being a regressive tax in nature and discriminates against the lower classes.