Sin Taxes

Why in news?

• Two-wheelers are neither a luxury nor sin goods and so merit a GST rate revision, Finance Minister Nirmala Sitharaman said at an industry interaction.
• Two-wheelers currently attract 28 percent GST, which is very high and automakers have called for a reduction.

About Sin Tax and Sin Goods:

• A sin tax is an excise tax specifically levied on certain goods deemed harmful to society and individuals.
• Goods charged Sin Taxes are called Sin goods.
• Two purposes for such taxes are:
  • To increase the revenue of the state and reduce tax burden on essential items.
  • To Reduce consumption by keeping the prices very high.
• A good example of Sin tax would be Liquor tax in India.
• Tobacco , drugs, soft drinks, fast foods, gambling, and pornography etc are also taxed high in many countries
• The Main criticism of such taxes are:
  • It causes smuggling and black markets of the taxed products.
  • It is a regressive tax in nature and discriminates against the lower classes, since taxation of a product such as alcohol or cigarettes does not account for ability to pay, therefore poor people pay a greater share of their income as tax.

PRELIMS QUESTION

” Consider the following statements regarding Sin Taxes:
1.It is an indirect tax levied on goods or services.
2.Alcohol taxation in India is an example of Sin tax.
Which of the statements given above is/are correct?
(a)1 only
(b)2 only
(c)Both 1 and 2
(d)Neither 1 nor 2

Answer to prelims question