Question

"The government generally levies higher Goods and Services Tax (GST) on socially undesirable products like cigarettes, tobacco, liquor etc." Identify and explain the indicated government budget objective in the above statement.

Hint:

Higher taxes on harmful goods are not just revenue-generating but also serve as a policy tool to reduce consumption of socially harmful products.

Answer 1

The state leverages taxation to address "market failures" and "curtail detrimental consumption." By increasing Goods and Services Tax (GST) on items deemed socially detrimental, such as tobacco products and alcohol, the state seeks to disincentivize their use due to adverse public health consequences. This constitutes a "sin tax," also designed to accrue funds for welfare and health initiatives. This approach embodies a fiscal policy aimed at fostering societal well-being and influencing conduct.