Are High Taxes On Cigarettes Fair?

Taxes have often been used extensively for bringing down the prevalence of smoking. As an indirect measure that creates economic disincentives against smoking, the role of “sin taxes” are recognized in economic theory. Though many people argue for complete ban on smoking, experience as well as theory suggests that taxes are effective and practical, and do reduce smoking. However, they are far from a perfect solution.
Are High Taxes on Cigarettes Fair?
Source - Wikimedia Commons (https://commons.wikimedia.org/wiki/File%3ASmoking_Kills.JPG)

The Concept of “Sin Tax”

Taxes influence behaviour by creating a disincentive. When a tax is levied on certain foods or beverages, or any other products, it usually leads to a rise in its market price (including tax), and in turn reduces its consumption by the people. The extent to which the prices will rise and change the behaviour related to consumption of the taxed product depends upon the elasticities of demand of that product. Since the tax is used for curbing a particular behaviour that is not endorsed by the society, or which is considered as being harmful for the

society, such tax is known as the ‘sin tax’.

Tax on Cigarettes

If smoking is such a behavior that we wish to influence, then taxes can be an important tool for doing so. Unless smoking is something that can be considered with indifference, there can be little plausible reason for not having high taxes on cigarettes.

Not even the greatest supporter of human freedom can possibly argue that cigarettes and smoking are a totally private affair. Smoking is often associated with cancers, but as any physician can tell you, it causes a lot more. In fact the most common disease caused by smoking is the ‘Chronic Obstructive Pulmonary Disease’ or COPD, which is also known as ‘smoker’s cough’ in common expression. It is a permanent cough, which often predisposes the patient to repeated and at times resistant infections, which then often spread to others in society as well.

Social Cost of Smoking

In addition to cancer and respiratory infections, smoking also causes heart disease, and strokes. All these diseases need to be treated at


a high cost, and even where the cost is shared through the medical insurance, it is ultimately borne by the society. The treatment and care of any disease requires real resources that are taken out from the economy, and their exclusion has an opportunity cost. The resources that went into treating the cancer patients could have been spent elsewhere creating social welfare in some form or the other had there been no cancer patient. The economy today is so intensely interwoven that every private cost and benefit is borne indirectly by the society.

Thus, smoking creates a cost not only for the person who directly bears its consequences, but for the whole society. Indirectly, and that is not only through passive smoking, we are all affected. For this reason itself, the smokers should pay higher taxes to compensate others. Another reason given in economics for such high taxes is exactly in an opposite dimension of reasoning. The demand for smoking is usually so inelastic that it is economically considered a fit case for higher taxation. The idea is that taxing on smoking can be imposed without any real impact on smoking habits themselves.

Contradictions Exist, but Still Taxes are Justified

Interestingly, the two justifications of higher tax on smoking are mutually contradictory. But then, either way, there is enough justification for high taxes on cigarettes.



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