Ahead of the presentation of the Union Budget, speculations are high about the government’s move on taxation and the allocation for various sectors. Finance Minister Nirmala Sitharaman will present Budget 2024 in the Parliament on February 1.
This time the Finance Minister will present an Interim Budget as the Lok Sabha elections are scheduled to be held in April-May. Though major changes to taxation policies are not expected, there are demands from various groups to increase the tax on certain goods to discourage their consumption.
As the past Budgets suggest, the government has been increasing taxes on certain goods like tobacco products, which are considered harmful. The high tax imposed on such products is called ‘Sin Tax’. This year also, the Finance Minister is expected to increase the Sin Tax on harmful goods.
According to a PTI report, a body of medical professionals, economists and public health experts has requested the government to increase excise duty on tobacco products to curb the consumption.
What is Sin Tax?
A sin tax is imposed on products deemed detrimental to public health and society at large. As the name suggests, sin tax is usually a high tax rate imposed on goods and services that are considered harmful for the society. Such taxes are imposed on tobacco, alcohol, cigarettes and gambling, which are considered harmful for society.
A high tax on such products is aimed at discouraging their consumption.
This serves a dual purpose of social welfare and revenue generation.
Elevating market prices of such products due to higher tax rates helps the government to dissuade individuals from indulging in what is perceived as socially undesirable behaviour. Secondly, these taxes place a substantial financial burden on corporations manufacturing such products, contributing to government revenue.
The concept of sin taxes in India was introduced as part of the Goods and Service Tax (GST) in 2017. Known for having some of the highest taxes globally on commodities like cigarettes, whiskey, and pan masala ingredients, India strategically employs sin taxes.
Before the implementation of GST, in 2015 a committee headed by then Chief Economic Advisor Arvind Subramanian had recommended a 40 per cent ‘sin tax’ on harmful goods.
Sin taxes, endorsed by renowned economists like Adam Smith, have a historical precedence dating back to 1776. Smith argued that taxes on items such as cigarettes, alcohol, and sugar were justified.
Countries worldwide, including the United Kingdom, Sweden and Canada, have embraced sin taxes on a broad spectrum of products and services. These include tobacco and alcohol, as well as lotteries and gambling, generating substantial revenue for governments. In India, currently the sin taxes encompass 52.7 per cent tax on cigarettes, 22.2 per cent for beedis and 63.6 per cent for smokeless tobacco.
Sin taxes, designed to make health-harmful items prohibitively expensive, aim to prompt more responsible consumer choices. As the Finance Minister unveils the interim budget, the nation waits to see how sin taxes will be calibrated to align with public health goals while contributing to the economic landscape.
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