Sumptuary taxes are ostensibly used for reducing transactions involving something that society considers undesirable, and is thus a kind of sumptuary law. Sin tax is used for taxes on activities that are considered socially undesirable. Common targets of sumptuary taxes are alcohol and tobacco, gambling, and vehicles emitting excessive pollutants. Sumptuary tax on sugar and soft drinks has also been suggested. Some jurisdictions have also levied taxes on illegal drugs such as cocaine and marijuana. The revenue generated by sin taxes is sometimes used for special projects, but might also be used in the ordinary budget. American cities and countries have used them to pay for stadiums, while in Sweden the tax for gambling is used for helping people with gambling problems. Acceptance of sumptuary taxes may be greater than income tax or sales tax.
Opposition to sin tax
•Sin taxes have historically triggered rampant smuggling and black markets, especially when they create large price differences in neighboring jurisdictions. •Critics of sin tax argue[who?] that it is a regressive tax in nature and discriminates against the lower classes, since taxation of a product such as alcohol or cigarettes does not account for ability to pay, therefore poor people pay a greater amount of their income as tax. •Sin taxes are not normally value added in nature meaning that expensive, high-quality products more likely to be purchased by the wealthy will have the tax comprise a much smaller proportion of its final purchase price, thus ensuring that the lower classes pay a much greater proportion of their lower income in tax.
•Sin taxes fail to affect consumers’ behaviors in the way that tax proponents suggest, for instance increasing smokers’ propensity to smoke high-tar, high-nicotine cigarettes when the per-pack price is raised and increasing the rate of people mixing their own drinks rather than buying pre-mix alcoholic spirits. •Critics[who?] also argue that the behavior affected by sin taxes are strictly personal and of no social consequence, and therefore should not be moderated by government.
Support for sin tax
•Some argue[who?] tobacco and alcohol consumption or the behaviors associated with consumption or both are immoral, or “sinful”, hence the label “sin tax”. By raising the cost for certain products (here called immoral), they aim to force change upon people’s behavior. •Tobacco and alcohol consumption has been linked to a variety of medical problems. In the United States alone, over 440,000 people die annually from smoking tobacco. By making the cost of unhealthy behavior prohibitive, they hope to produce a healthier society.
•Following the medical argument, some argue[who?] that consumers of tobacco and alcohol 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, and should be taxed extra to pay for the costs of their treatment. Adam Smith supported the medical and moral arguments in The Wealth of Nations: “It has for some time been the policy of Great Britain to discourage the consumption of spirituous liquors, on account of their supposed tendency to ruin the health and corrupt the morals of the common people.” The moral, medical and financial arguments are occasionally considered in contemporary news settings.
•Not all research supports the idea that alcohol and tobacco consumers financially burden societies. One study used a mathematical model to compare estimated health costs of obese persons, tobacco smokers, and “healthy-living people”. Until age 56, obese persons had the highest estimated annual health expenditure. Tobacco smokers older than this had the highest estimated health costs of all groups, but since life expectancy is shorter for smokers and the obese, the “lifetime health expenditure was highest among healthy-living people.”
The model for this study used input parameters based on data from the Netherlands. •To raise revenue for tight government budgets, legislators sometimes attempt to raise revenue by imposing unusually high excise taxes on cigarettes, liquor, gambling, and so on. This type of charge, often called a “sin tax,” appeals to voters who view it as a way of discouraging consumption of certain objectionable products. •Critics of sin taxes cite the following as reasons against imposing a sin tax:
•It reduces the income of the buyer.
•- It lowers profits for the seller, and leads to reduced investment, wages, and jobs. •- It is not likely to seriously discourage consumption habits when those habits are intensely desired. •- It may eventually decrease government revenue, especially as people move their business to the informal sector. •- It encourages people to turn to harder substances to feed their habits at the same price. •- It creates underground markets, which tend toward corruption and violence, and fosters disrespect for the law. •- It sets up a moral hazard for policy makers, who vacillate between wanting to discourage undesirable behavior and wanting to encourage it for revenue purposes. •The goods that sin taxes are imposed on vary by state, so local laws should be consulted. Typically, when sin taxes are imposed, they are imposed on items that are discouraged for health, moral, and other reasons, for example, cigarettes, gambling, soda pop, beer, wine, hard liquor, topless bars, snacks, and other items.
•The Department of Finance (DoF)-backed reform on the so-called sin taxes would raise the ratio of excise tax to retail prices of tobacco and alcohol to international levels, as recommended by the World Bank. •Finance Undersecretary Jeremiah N. Paul Jr. said Thursday in a statement that affected companies’ claims on the effects of the proposed law are “exaggerated” and “taken out of context.” •Earlier this week, PMFTC president Chris Nelson told reporters the bill would encourage illicit trade while “ravaging” legitimate business, noting that the DoF itself expects a 50-percent drop in industry revenues if the proposal becomes law. •House Bill No. 5727 calls for the pegging of retail prices to inflation and implementing a unified tax rate as opposed to the current multitier regime.
•Citing a World Bank report titled “Sustaining Growth in Uncertain Times,” a quarterly update on the Philippines issued in December, Paul said Philippine excise taxes are far lower than those in other countries. •The bank’s 46-page report finds that “in a comparison of 15 countries, the Philippines’ rates appear in the lower half when comparing taxes as a share of retail prices (RSP).” •The World Bank attributes “the very low revenue yield from tobacco products” to low excise tax rates, which are not indexed to inflation, and the use of 1996 prices as bases for taxation of older products and current prices for newer products.
•As of 2009, data provided in the study showed excise tax as a percentage of RSP of tobacco at 32.9 percent for the cheapest brands and 37.5 percent for both the most sold and premium brands. •In comparison, Thailand has 51.1 percent, 58.4 percent, and 61.6 percent, respectively, while Mexico has 48.6 percent across the board and Turkey has 64.1 percent, 58 percent, and 58 percent. •For liquor, the report also showed a relatively low excise tax-RSP ratio for the Philippines with 26.1 percent for beer, 5.5 percent for wine and 35.8 percent for distilled spirits.
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