Advisory Services
Audit
Consulting
ESG Advisory
RBI Registration
SEBI Registration
IRDA Registration
FEMA Advisory
Compliances
IBC Services
VCFO Services
Growing
Developing
ME-1
ME-2
EU-1
EU-2
SE
Others
Select Your Location
Have you ever noticed that cigarettes or alcoholic drinks cost more than their cost of production. The reason behind this is a significant amount of their price comprises of tax which is levied at a higher rates. It’s also called Sin Tax. In this article, we will discuss the concept of sin tax.
A sin tax refers to the tax levied on goods or services that are harmful for the society. These goods and services on which sin tax is levied include tobacco, alcohol, sugar-added drinks and gambling. The main objective behind imposing this tax is connected with public health purposes i.e., to discourage the consumption of harmful products by making them unaffordable to consumers.
Government adds up to its revenue by imposing high taxes on these products. The additional government revenue from sin taxes is utilised to cover societal costs incurred due to the consumption of harmful goods. Moreover, revenue from such taxes help government to implement certain social programs like raising awareness on the bad effects of smoking, drinking, chewing tobacco etc.
Usually, sin taxes are imposed as value added taxes on harmful products like alcoholic drinks, cigarettes etc. These are also considered as regressive taxes as these sort of taxes put more burden on poor population but less burden on wealthier population.
India levy high tax on sugar carbonated beverages, and under the current GST structure, certain sin goods attract additional cess which includes products like tobacco, pan-masala, aerated drinks etc.
Indian population accounts for about 270 million people aged 15 and above who intake some form of tobacco products. Tobacco has become one of the major risk factors for chronic diseases like cancer. In India, it accounts for 1.3 million deaths every year as per a WHO report. Hence tobacco products fall under the highest slab of 28% as it attracts heavy cess. This cess is paid by the central government to the state government to compensate for the loss of revenue due to GST implementation.
A cess of 65% is levied on unmanufactured tobacco bearing a brand name whereas it is 160% for scented zarda. Further, a cess of 204% is levied on pan masala having guthka, and the current cess on cigarette is 5% plus- up to Rs. 4170 per 1k sticks. The total tax burden as a percentage of the final tax-inclusive retail price is 52% for cigarette, 22% for bidis and 63% for smokeless tobacco.
What India imposes is still lower than the tax burden recommended by WHO[1] (at least 75% of the retail price for all tobacco products). In the month of October, the Indian government had formed a panel to draft a comprehensive tax policy proposal covering tobacco products from the perspective of public health.
Alcohol is taxed separately by states and it has been kept out of the purview of GST. Taxes on alcohol form a major source of revenue for states. As per a RBI report, all states and Union Territories had budgeted a total of Rs 1,75,501.42 crore from state excise on liquor during 2019-20.
Moreover, profit from online betting and gambling are taxed at a rate of 30% without accounting for basic exemption limit of 2.5 lakhs under the income tax rule.
Global examples-
Countries like the UK, Sweden and Canada impose Sin Taxes on a variety of products and services, from tobacco to alcohol to lotteries, gambling and fuel, which chip in with sizeable revenues. In 2013, Mexico had imposed a Soda Tax.
Every aspect can be weighed on the scale of advantages and disadvantages. Similarly, levying sin tax involves both these-
Advantages
Disadvantages
The Finance Minister, announced her fourth budget for the financial year 2022-23 recently. Before the budget is presented, usually, the stock market becomes anxious as it fears an increase in the sin tax however, this year the cigarette manufacturing businesses, especially index heavyweight ITC, climbed up to 3.5% on the Bombay stock exchange as the government kept the taxation rates for sin products untouched.
So the concept of Sin tax has two pronged objectives one is of course to deter the consumption of harmful products, and the other objective is to use the funds generated from these taxes to fund welfare programmes. To support the rationale of the government, evidence from other countries that had imposed such taxes shows that the consumption of cigarettes and soft drinks has fallen significantly, after the new tax.
Read our Article:Section 269SU of the Income Tax Act
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
The objective of the enactment of the Prevention of Money-laundering Act, 2002, i.e. PMLA (the...
Tax planning is a continuing effort and a management strategy for ensuring the minimization of...
On 18th May 2023, the Securities Exchange Board of India (SEBI) released a Consultation Paper o...
Infrastructure and real estate have been regarded as India's "sunshine sector" since the turn o...
On 22nd May 2023, the Central Board of Direct Taxes (CBDT)[1] issued a new circular under secti...
Anyone can have different sources of income. With globalization and the opening up of economies...
The Reserve Bank of India (RBI) is crucial in regulating NBFC, including branch openings and cl...
In India, Non-Banking Financial Companies are subject to certain restrictions from taking publi...
It's usually a good idea to diversify the assets in your financial portfolio, especially during...
A nation is being built by the non-banking finance company through the development of wealth, t...
Are you human?: 8 + 3 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
The High Court of Delhi pronounced a judgement in the case of Vipul Aggarwal Vs Income Tax Officer on 19th July 202...
10 Nov, 2022
Advance tax and TDS are the direct tax rules framed by the government in order to have regular inflow of funds to c...
07 Oct, 2021
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!