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In: Economics

Should government impose tax on vice activities (tobacco,alcohol)? Discuss.

Should government impose tax on vice activities (tobacco,alcohol)? Discuss.

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Expert Solution

Taxes on vice activities is called Sin Taxes. A sin tax is an excise tax specifically levied on certain goods deemed harmful to society, for example alcohol and tobacco. These taxes are used to increase the price in an effort to lower their use, or failing that, to increase and find new sources of revenue.

There are two separate views on whether a government should impose a tax on such activities or not.

Opposition against the tax: The view according to which it should not be imposed criticize it for burdening the poor, taxing the physically and mentally dependent, and being part of a nanny state. It is often linked to smuggling and black markets of the taxed products and still doesn't affect consumers' behaviours. Also there are people who suggest that such a tax makes government more reliant on the revenue from the tax and inturn end up encouraging "sinful" behaviour in order to maintain the revenue stream.The people who oppose these taxes are of the view that if Governments were really keen to curb smoking and alcoholism, they should attempt to curb addiction to tobacco and alcohol, by all possible means through propaganda, education and laws.

Those who favour this tax maintain the stand that the consumption of tobacco and alcohol are immoral and a tax on it is justified. Also vice activities are linked to a variety of medical problems and affect an individual's mental and physical health. This further cause a greater financial burden on society by forcing others to pay for medical treatment of conditions stemming from such consumption, especially in most first-world countries with government-funded healthcare.

If we compare the above two stand points, we can see that imposing a tax is better than not imposing the tax on vice activities.I think that if government does so then it will be socially good for the health of the country. It is the duty of the Government to discourage people from such harmful activities, like smoking and drinking alcohol. To that end, taxes are justified as a tool to achieve a reduction in smoking and drinking habits. And if the tax still doesn't lead to reduction in consumption it can atleast get more revenue for the government.


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