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Brain-booster / 16 Sep 2020

Current Affairs Brain Booster for UPSC & State PCS Examination (Topic: Sin Goods and Sin Tax)

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Current Affairs Brain Booster for UPSC & State PCS Examination


Topic: Sin Goods and Sin Tax

Sin Goods and Sin Tax

Why in News?

  • The government may consider bringing down Goods and Services Tax (GST) on two-wheelers from the highest slab of 28% as finance minister Nirmala Sitharaman has assured the industry, two-wheelers are neither a luxury nor a sin good, hence merit a rate revision.

About 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, etc.
  • Taxes levied by the government on sin goods called Sin Tax.
  • In India, cigarettes, pan masala and liquor have always attracted high taxes, even under a non-GST regime.
  • 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 and the UK is now debating a Sugar Tax, to tackle obesity, on all foods and drinks with high concentrations of the sweetener.

About Sin Tax

  • Sin’ taxes are imposed to discourage consumers from using goods or services that are seen as undesirable or detrimental to society.
  • Sin Taxes are intended to serve two objectives.
  • One, to make the undesirable goods so expensive that rational consumer would be forced to give up the habit.
  • Two, to make the industry producing these products pay higher tax, which can be used to fund other welfare expenditure.
  • Sin Taxes are now a global trend.
  • Revenue generated by sin taxes supports many projects imperative in accomplishing social and economic goals.

Arguments in-favour

  • 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.
  • In India, the case for taxing vices can be further bolstered by the fact that the country can ill-afford to fritter away its limited healthcare budget on avoidable health risks.

Argument against

  • Economists and advocates of personal liberty have equally strong arguments again Sin Taxes too. For one, a definition of what constitutes a ‘vice’ can be pretty fluid.
  • Sin Taxes can give the state unnecessary moral authority to dictate what citizens should and should not be doing.
  • While Sin Taxes may reduce purchases of a product for a few initial years as fence-sitters or occasional users cut back, consumers who are really addicted to the habit may persist with their ‘sinning’. This can extract a steep toll on poor families.
  • Sin Taxes, once imposed, don’t really distinguish between occasional and addicted users of products and services.
  • There is the danger that once the government tastes success with one kind of Sin Tax, it may be tempted to extend it to a battery of others.

In India

  • According to the current Goods and Services Tax (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.