Sin Taxes - Taxes and Their Impact

Introduction:

A sin tax is a tax that is imposed on goods like tobacco, alcohol, and sugar-sweetened beverages harmful to health. On the other hand, they help raise additional revenue and improve the population's health. Several countries and governments have employed taxes on these products to reduce consumption. The policy and studies have proposed increasing the manufacturing cost, distribution, retail, and consumption of these products.

What Is Sin Tax?

Sin or public tax are the taxes imposed on target products or goods that can affect the community's health. These products are alcohol, sweetened beverages, tobacco, tea, flavored drinks, coffee, juice, and sports drinks. The harmful effects of these products are evident and well-evidenced. For example, consuming tobacco products increases the risk of developing cancer, respiratory disease, cardiovascular disease, and other chronic diseases.

What Is the Impact of Sin Taxes?

The increase in taxes or prices on food products rich in sugar can lead people to buy other processed foods high in saturated fat or sodium that provide no health benefits. The effect of consumption of sweetened beverages has increased the burden of obesity and lifestyle disease. Sin taxes help reduce the consumption of unhealthy products and allow policymakers to raise product prices, making them less affordable than other products. These taxes help improve public health.

• Higher cigarette taxes reduced hospitalization, mortality, and death due to lung, throat, and other cancers.

• Higher taxes and prices reduced low birthweight, sudden infant death syndrome, and infant mortality.

• The rise in the price of sugar-sweetened beverages leads to an increased intake of organic food drinks, bottled water, and milk as substitutes. The reduction in consumption of sugar-sweetened beverages and soft drinks lowered the risk of obesity and diabetes and improved health overall.

• They provided modest job opportunities.

What Is the Need for Sin Taxes?

The sin taxes reduce the consumption of harmful products and improve health. The reduction in consumption depends on the consumer. The reduced consumption of the products has promoted health as follows:

Tobacco Products: Such as cigars, bidis, pipe tobacco, smokeless tobacco, and, recently, electronic cigarettes, are known to be in demand. As the price of these products increases, overall consumption reduces. In the case of nicotine addicts, a complete consumer response can be seen even with the higher prices. Consumption can be reduced in number, but supply and demand will be the same. An increase in prices and taxes can reduce smoking-related disease and premature death.

Alcohol Beverages: The overall price rise for alcohol falls in high-income countries than in low-middle income. Increased demand for spirits other than beer can be noticed. Increased prices and taxes reduced the effects of excessive drinking, including vehicular accidents and fatalities, death due to liver cirrhosis (scarring of healthy liver cells), alcohol dependence, and other diseases. It also has impacted incidents of crime, violence, and sexually transmitted diseases.

Sugar-sweetened Beverages: Soft drinks are always in huge demand. They are fruit-based, sports, carbonated, ready-to-drink teas and coffees, flavored waters, and energy drinks that are both sugar-sweetened and artificially sweetened. As the prices or taxes increase, sugar-sweetened beverages are more responsive than soft drinks. Therefore, the substitution of these drinks is water and milk when soft drinks price rises.

Consumption of sugar-sweetened beverages has had adverse effects on children in the form of attention deficit and hyperactivity disorder. Furthermore, an intelligence test on children showed low cognitive levels with the increased consumption of these beverages, whereas in association with fruit consumption, the cognitive score was high. Hence, it reflected the product of performance at school and future income level. Furthermore, being overweight and obese are other increased risks of sweetened drinks, while no weight gain is noticed when sucrose is replaced with low-caloric artificial sweeteners. Still, they can increase the risk of developing diabetes.

These effects lead to the implementation of tax applications to promote health among the population.

What Is the Impact of Sin Tax on the Economy?

The manufacturers of these products have raised arguments and opposed price rises and taxes as they will reduce revenue leading to a decrease in consumption, affecting the poor, and causing unemployment, but they are proven false.

Government Revenues: The impact of increasing the taxes on tobacco and alcohol increases government revenues. Countries that have raised tobacco prices have noted a fall in consumption and an increase in revenues. Similarly, alcohol taxes also increase government revenues though lesser than tobacco or cigarette taxes.

Employment: The manufacturing and production industries have argued about unemployment, contending with increased taxes and prices. However, the job losses in such sectors have caused job gains in other sectors. In addition, the consumers' spending on the taxed products substitutes them with different products resulting in demand for job openings and manpower, leading to modest job gains. For example, tobacco farmers shift to the production of other crops.

Sin Taxes and Regression: This means it takes enormous amounts of income from the poor than from the rich. They can impact the poor with products like tobacco and sugar-sweetened beverages whose consumption is higher in poor or low-income groups. Owing to this, the tax increase can have a progressive impact on the health of low-income populations.

Avoiding Tax: Increase in taxes and prices can lead to preventing tax evasion from impacting health and revenues. However, while increasing the price and taxes, the government elicits curbs on trade through strengthening tax administration, enhanced enforcement, and substantial penalties that can promote health and enhance the revenue impact of taxes.

What Are the Ways to Practice Tax Policy?

Sin taxes are essential to promote health as they are uniquely associated with these products and significantly impact relative prices more than other goods and services.

• Taxes on specific goods and services have many advantages over those based on value. These reduce price gaps by inducing consumers to opt for cheaper brands when taxes are raised. Specific taxes will be easier to administer and are not subject to industry price manipulation.

• Taxes should be ingredient-based, and the price should be affordable. Over time, taxes and prices should be changed as needed and on consumer demand.

• Huge taxes on certain products can lead to a reduction in their use.

• The revenues generated through taxes add to the health impact and can be used to promote health benefits through mass media campaigns that discourage the consumption of these products.

Conclusion:

The sin taxes are an effective way to reduce alcohol consumption, tobacco use, and sugar-sweetened beverages. The demands for these products are price-based. The governments have recognized and introduced a rise in taxes that decreases the use of these products and improves health. Substitute products such as bottled water, fruits and vegetables, milk, and other foods that help in a healthy lifestyle and reduce the risk of obesity, cancers, and diabetes have risen. When specific product taxing is considered, alcohol and tobacco are the most effective taxing options that impact health positively.