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Sin goods and sin tax

Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Sin goods and sin tax:


Context:

Finance Minister recently said that two-wheelers are neither a luxury nor sin goods and so, merit a GST rate revision.

  • Two-wheelers currently attract 28% GST.

Sin goods:

Sin goods are goods which consider harmful to society.

Example of sin goods: Alcohol and Tobacco, Candies, Drugs, Soft drinks, Fast foods, Coffee, Sugar, Gambling and Pornography.

What is sin tax?

It is placed on goods that adversely affect health, most notably tobacco and alcohol.

Three principal arguments are used to justify this type of taxation:

  1. It can reduce consumption through increased prices.
  2. Compensate society for things like increased health system costs.
  3. Increase resources for the health sector.

Regulation in India:

According to the current GST rate structure, some of the sin goods that attract a cess include cigarettes, pan masala and aerated drinks. Apart from sin goods, luxury products like cars also attract a cess.

Global examples:

Countries such as the UK, Sweden and Canada impose Sin Taxes on a series of products and services, from tobacco and alcohol to lotteries, gambling and fuel, which chip in with sizeable revenues.

Mexico imposed a Soda Tax in 2013.

Why is it important?

  • That excessive consumption of tobacco, alcohol or empty calories heightens health risks such as cancer, heart conditions and obesity, is quite well-documented by now.
  • Evidence from other countries that have imposed Sin Taxes shows the consumption of cigarettes and soft drinks has fallen significantly, after the new tax.
  • The huge revenues many State governments in India rake in from liquor sales (and taxes) show that Sin Taxes can mean a bonanza for the State.

InstaLinks:

Prelims Link:

  1. What is sin tax?
  2. Which country imposes soda tax?
  3. What is Pigovian tax?
  4. What are merit goods?

Mains Link:

What is a sin tax? What are sin goods? Discuss.

Sources: the Hindu.