Sin Tax – Definition:
A sin tax is a tax that gets imposed on goods and services that are considered to be harmful or costly to society. Usually, goods and services include alcohol, t*bacco, sugar-added drinks, and harmful gambling.
Idea Behind Imposing Sin Taxes
The main idea behind imposing sin taxes is to reduce the consumption of harmful goods. Also, to increase the government revenue. In order to reduce consumption, the goods are made less affordable to consumers.
As a result, customers pay a high tax on goods and services, and the government gets to earn more revenue.
Read – 5 Best Tax Attorneys In New York City (Updated)
Collected Funds Usage:
Moreover, the additional government revenues collected from sin taxes are usually spent on covering the societal costs created by the consumption of unhealthy goods.
For instance, increased spending on healthcare to treat the diseases caused by excessive consumption of alcohol or smoking.
Along with that, sin taxes allows the government to implement different social programs. For instance: running awareness programs and more.
Read – Top 5 Tax Filing Mistakes And How to Avoid Them
We usually get to see sin taxes imposed as value-added taxes on a wide range of goods. This includes cigarettes and alcoholic drinks.
Furthermore, sin taxes are regressive taxes. The taxes, then, place a greater burden on the poorer parts of the population and less on the wealthier.
Pros of Sin Taxes
Sin taxes are imposed in various countries, and it has certain advantages. For instance:
#1. Discourage unhealthy or immoral behavior
According to different research, it is found that the sin taxes imposed on alcohol and t*bacco products actually help in reducing consumption.
Also, it leads to an inevitable decline in health issues related to the consumption of unhealthy substances. As a result, the government has to spend less amount of money on healthcare.
#2. Cover the costs
Sin tax helps the government to make a good amount of revenue. So the government can use the funds to offer more and more services to the citizens.
For instance, the government may use the funds to subsidize healthcare to reduce the adverse effects of consumption.
Read – 5 Best Tax Preparation Services In New York City
#3. Earns more revenue compared to other taxes
The sin tax is also considered a viable option for collecting tax. This helps increase the government’s revenue compared to any other type of tax, such as income tax. As a result, the governments can use the funds to offer a variety of services to the citizens.
Cons of Sin Taxes
Apart from pros, a few cons are associated with a sin tax, such as:
#1. Regressive tax
Sin taxes are regressive and discriminatory. It harms the poor’s the most by placing a bigger financial burden on them. But it doesn’t really affect the wealthier people.
#2. Illegal activities
If the government imposes excessive sin tax, it may result in illegal activities or black marketing of different goods.
#3. Consumer behavior differences
Sin taxes don’t really affect the consumer’s behavior. Of course, in some instances, some consumers may stop consumption. But a majority of the consumers may not be interested in leaving their habit of consumption.