Large sodas, alcohol, and tobacco are just a few things governments around the world want to keep us away from. It seems governments worldwide have embraced what economists call “sin taxes” — taxes on goods considered harmful to society, like sugary drinks, tobacco, and alcohol — as both a quick fix to budget imbalance and to preserve public health. Now, as India’s Group of Ministers (GoM) considers hiking the Goods and Services Tax (GST) on these so-called sin goods to 35 per cent, there’s much to dissect about the real impact of such measures. The idea behind a sin tax is pretty straightforward: make harmful products more expensive, so people buy less of them.
It’s about nudging us away from bad habits while boosting government funds. Take a moment to think about where that tax-generated revenue goes and whether taxes actually work. If people quit consuming these goods, the revenue dries up raising questions about whether these taxes are really about public health or just a convenient cash grab. In an ideal world, these funds would be redirected to improve public health systems, offsetting the costs associated with the consumption of these very goods. However, the reality can be far messier.
The research (Taxing Sin by Michael Thorn, 2021) suggests that these taxes fail to reduce consumption. Instead, they hurt consumers from lower income brackets, who spend a larger chunk of their income on these goods. These taxes often contribute to the growth of black markets. The artificial price hike by the government simply pushes consumers to find alternatives, often in illicit ways, instead of quitting. And while sales on the books may drop, actual consumption might not fall as much as intended. Another layer to this issue is its social impact. Sin taxes are regressive.
Studies (The Quarterly Journal of Economics) suggest that poorer consumers spend a bigger chunk of their income on taxed goods like cigarettes and sugary drinks. This means they bear a disproportionate share of the burden, potentially deepening the societal divide these taxes are meant to bridge. Tax hikes as public health measures often backfire psychologically. Research indicates that people feel more resentment towards price hikes due to taxes than other market forces. This resentment leads to noncompliance, fuelling black markets and causing government distrust among the public. Globally, implications of sin taxes show mixed results. Studies (American Journal of Health Promotion) reveal the severe gaps in policies fuelling illicit trade and broadening economic inequality among consumers. These studies underline that while sin taxes can reduce consumption and support public health goals, they must be carefully balanced against their broader socio-economic impacts. Consumers deserve better.
It’s time to challenge the policies that undermine choice under the pretence of public health. A progressive society isn’t built on punitive taxes but on allowing people to make their own choices. Policymakers must acknowledge freedom and not undermine it. Policymakers must craft strategies that are not just economically sound but also ethically justifiable and psychologically understood. After all, the aim is to improve public health without infringing unduly on personal freedom or aggravating socio-economic imbalance. As citizens, we must demand accountability and transparency.
The argument isn’t about just sin goods; it’s about our right to make choices without government intervention. Engaging in this dialogue is vital to ensuring that tax policies align with our values of freedom, fairness, and consumer choice, promoting a healthier and more equitable community for all.
Originally published here
