Did you know that sin goods attract sin tax?

Last Updated on Apr 6, 2021 by Manonmayi

There’s positive motivation and then there is negative motivation. Remember how your parents warned you of the consequences if you did something bad?

Right.

However, you did it anyway because tum thehre apne marzi ke malik. That you had to pay for it is given.

Now let’s take this to the macro level.

Remember all the picturesque warnings of ‘smoking kills’ that you get to see on a cigarette packet, and ‘alcohol is harmful’ before your favourite movie starts to play?

In the end, all you can remember is Mukesh and that’s that.

But, the government decided to take matters into its hands and levy sin tax to discourage citizens from smoking and drinking.

Sounds off, ain’t it? Let’s see more about it.

What is sin tax?

Sin tax is levied to discourage people from consuming goods or services such as tobacco and alcohol that are harmful to society. It serves two purposes:

Make the specific goods expensive, so much so that consumers are forced to not consume them
Collect higher taxes from industries that produce such goods and use it to fund welfare expenditure

The Indian scenario

As of now, the government of India levies sin tax on:

Cigarettes
Liquor
Pan masala

In addition to the above products, a committee headed by Arvind Subramanian also suggested levying sin tax on luxury cars and aerated beverages at 40% under the GST regime. So, keep yourself updated with the latest news.

The global scenario

Governments of various economies have resorted to levying sin tax to make consumers of harmful products liable for their actions. They have gone a step ahead and added other products in addition to alcohol and cigarettes to the list of sin goods. For instance, the Canadian, UK, and Swedish governments consider lotteries, fuel, and gambling as sin goods. Mexico has a soda tax and the UK is considering a sugar tax to fight obesity.

How efficient is sin tax?

As per the government, levying sin tax justifies the negative externalities that are by-products of goods/services detrimental to society. However, the efficiency of a sin tax depends on individual products. For instance, burning fuel emits carbon dioxide, which is harmful to all living beings alike (and the drivers do pay sin tax for it). However, the same is not the case with smoking and drinking.

In case of alcohol, sin tax doesn’t differentiate between an occasional drinker and a regular consumer. Though the latter is not exposed to a high health risk, they still have to pay sin tax just as the regular drinkers. The story is different in case of tobacco consumption. Since nicotine is extremely addictive, most consumers of cigarettes are regular users of it. Further, smokers die earlier as compared to non-smokers, which means they draw lesser from pensions during their retirement and save national expenditure.

Thus, in cases where products are detrimental to those who consume it and not to the population at large, the purpose of a sin tax is defeated. But, a noteworthy fact is that sin tax collected on liquor and tobacco contribute majorly to the revenue of various state governments in India.

To conclude, levying sin tax as a way to change the behaviour of individual consumers is justified but habitual smokers and drinkers continue to exploit their health regardless. This can be a burden to poor families.

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Aradhana Gotur

Senior Content Writer at Tickertape

Aradhana Gotur is a Content Writer with 4 years of experience in personal finance, stock markets, and lifestyle areas. Having recognised the power of words, she constantly works on using them to enhance financial awareness among the masses and meet business objectives. One of her greatest strengths is breaking complex concepts in an easy-to-understand way.

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