Business, Legal & Accounting Glossary
A Sin tax is a euphemism for a tax specifically levied on certain generally socially-proscribed goods – usually alcohol and tobacco. Sin taxes are often enacted for special projects – American cities and counties have used them to pay for stadiums – when increasing income or property taxes would be politically inviable.
Some jurisdictions have also levied taxes on illegal drugs. Whether this actually qualifies as a sin tax is rather questionable, since such taxes are generally intended to create an additional punishment for trading, possession or consumption of illegal drugs rather than to raise revenue.
Sin tax is a term that identifies a tax levied on certain items deemed to be a vice. By levying a sin tax, governments can discourage the use of such products without making them illegal. A sin tax is usually imposed on items or practices that the government would like to discourage for purposes of overall morality and health of the populace. Gambling, tobacco products, and alcohol are popular targets of the sin tax. A least traditional target of the sin tax has been the soda and sweetened beverage industry.
The sin tax can also become a large source of revenue for the government that charges it. Critics of the sin tax cite this as a potential moral hazard for legislators who can end up with a conflicting agenda of wanting to discourage certain practices while at the same time also hoping to generate revenue through the participation in those same practices.
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This glossary post was last updated: 13th February, 2020