Sin tax
Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Class 9, Ch 9 "The Price Puzzle: What Drives the Market"
Meaning
A sin tax is a higher tax on harmful products, called demerit goods, such as tobacco, alcohol and sugary drinks. Its main aim is to make these goods more expensive so that people choose healthier options. It also raises revenue. However, if people really do cut back, the revenue from the tax falls.
Example
Since 22 September 2025, India has put pan masala, tobacco and aerated and sugary drinks in the special 40% GST slab. Tobacco also pays central excise duty. Pan masala also pays the Health Security se National Security Cess (2025). The WHO recommends that excise should make up at least 75% of the retail price of tobacco.
Don't confuse with
- Pigouvian tax: this taxes harm done to others, such as pollution. A sin tax mainly targets harm the buyer does to themselves.
- Regressivity: sin taxes take a larger share of a poor person's income. High sin taxes can also encourage smuggling.