Tax on Sin

Online gaming and gambling in India got hit with a 28% GST tax. This was a huge increase, by a factor of 10-11 times. In theory, this means additional government revenue of ₹20,000 crores annually. (In practice, who can say? Maybe demand and supply will change due to the new tax rate. Maybe some of it will go “underground”, i.e., be done illegally).

 

Is this any different from other “sin taxes”, like the high tax rates on alcohol and tobacco? Not really. The question though is what is the purpose of sin taxes – to reduce consumption of something “bad”? Or for the government (and thus the country) to collect money that could be spent on other things? Historical data suggests that if the aim is to reduce consumption, it doesn’t make much of a difference (Yes, cigarette consumption has reduced as taxes increased, but that’s because of the growth in awareness of the link between tobacco and cancer).

 

This blog asks an interesting question - what should be considered a “sin good”, an item that should be taxed because it is bad?

“It is quite clear that conventional morality plays a bigger role than the real risk to society in arriving at the definition.”

Sugar, from example, is bad for health (scientific evidence says so). Yet, as the author says tongue-in-cheek:

“It is difficult to imagine a scenario where jalebis will be taxed at 28 per cent.”

 

All in all, I guess many would agree with what Chrissie Hynde once said:

“Once you stop drinking and smoking and stuff, it really gets on to your nerves, all that nonsense going on.”