Limitations And Drawbacks Of Sin Tax On Cigarettes

There are activities of an individual that pose significant social costs on the society. Smoking and Alcoholism not only have adverse affects for the smoker or the alcoholic, but also additional costs for the society, which justifies imposing special ‘sin’ taxes on such products. However, taxes often do not go far in preventing such activities, and can also be unfair to the extent that they often end up taxing the poor more than their ability to pay.
Limitations and Drawbacks of Sin Tax on Cigarettes
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Taxes have often been increased on cigarettes on the pretext of controlling smoking. One of the obvious questions one may ask is why not completely ban these products. One may also ask whether such taxes have really been effective in controlling smoking and similar vices, and whether they result in any consequences that we may not exactly wish to have.

Why not a Complete Ban on Cigarettes

Though many people argue for complete ban on smoking, experience as well as theory suggests that complete ban may only end up converting the existing legal and regulated business in these products to an illegal

one, as the demand from those addicted with them is not going to go away. This can lead to additional problems of law and order, create costs of administration and law enforcement and push the trade of these products into the hands of illegal syndicates and mafias. By vesting them with a new regular source of income, we may end up multiplying the social problems and costs.

Then there is the question of regulation. While selling tobacco is generally legal, selling other products like cocaine and marijuana are not. Making trade of tobacco illegal means that henceforth there would be little regulation of what is sold in the name of tobacco. On one hand, it could lead to fake or spurious products, on the other hand, it may enable sellers to get more customers looking for tobacco diverted into other addictive drugs like cocaine and marijuana.

Similarly, a complete ban on alcohol, which is even less feasible, and yet actually practiced more often in real life in the name of religious and cultural restrictions, can lead to selling to spurious liquor that can create immense dangers for the health of those consuming it. Every year, around the world, hundreds of poor people in developing countries lose their lives or are affected by other permanent damages, commonly to the eyesight, from the use of unregulated and unsafe liquor.

Tax as a Source of Revenue

It must also be recognized that the governments, which get the tax revenue obtained from cigarettes and alcoholic products would also not be easily willing to give up that revenue. Year after year, the tax rates on these so called behavioral sins get revised with little resistance from those who have to pay it, helping the Governments to fill up some of their fiscal shortfalls. Indeed, it is ironical, that if taxes become effective tools of controlling smoking or alcoholism, the

governments will actually end up losing their precious contribution to the treasury.

Sin Taxes can also result in Unfairly high Tax on Poor

One of the biggest limitations of the ‘sin’ taxes is their adverse tax burden on the poor. When taxes on cigarettes or alcohol are raised, due to the inelastic demand, the tax burden is largely passed on the consumers, which includes rich and poor alike. For a rich person, the total tax burden may not make much of a difference, but for a poor person, it can make a lot of difference, and may get reflected in reduced spending on important aspects like food, health or education, or may even result in greater indebtness, thereby pushing him along with his family or household into an irreversible economic crisis.

This limitation of sin tax is one of its greatest criticism. If smoking or alcoholism are not going to be controlled by a tax on them, then their impact of the economic health of the affected household could add to the problems created by the vice that is sought to be controlled by the sin tax. To put it in simple words, taxes may end up increasing the economic burden of the addiction on a poor household.


Thus, one can consider ‘sin’ taxes only as an imperfect solution to a social problem. It is a remedy that can also end up complicating the disease further. Yet, it is unlikely that it will be given up any time soon, and for all the criticism and limitations of sin taxes, it would be fair to say that there is a good amount of justification to support them.

What we need to do, is to address the problem of substance addictions by preparing our youngsters to say no to them, by educating them against the vices of addiction and their social costs, by creating a social view that is against them and most importantly, by preventing these vices from becoming a tool of ‘peer acceptance’ in the vulnerable groups, like those of teenagers.

To summarize, social problems need appropriate solutions. Fiscal interventions are not unjustified, but can have only limited impact on them.

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