Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

In Defence of the Sin Tax

Written by johnleemk on 1:59:05 pm Jun 23, 2007.

Sin taxes are one of the more controversial taxes out there. They are basically a form of indirect taxation (which has its pros and cons) on goods and services which society considers to be moral ills.

As a general rule, it is unwise for the government to interfere in people's lives more than is necessary to enforce the rights of others. Libertarians rightly ask why we should punish people for making decisions about their own lives — even if the majority says we should, that doesn't make it right.

Sin taxes, though they rarely have conventional economics cited as a defence of them, actually do have sound economic backing however. In fact, a libertarian should support sin taxes, because they correct an infringement of individual rights.

Common examples of sin taxes are taxes on cigarettes and alcohol. Choosing to consume these goods is an individual decision; should the government be involved and actively attempt to reduce their consumption?

The answer is yes, because of the external costs not accounted for in the price of these goods. Without taxes, the price of a pack of cigarettes would not account for second-hand smoke and the impact of cigarette smoking on the health and enjoyment of others.

Likewise, the price of alcohol does not include the costs of things like drunk driving and other general impairment of one's faculties which can pose a menace to society. It is the individual who is harmed by a drunkard who cannot react quickly enough to avoid an accident.

A logical conclusion might be to even extend the sin tax to other things. Libertarians in a number of countries have been campaigning for the legalisation of drugs because they believe that the choice to use drugs is an individual one which the government has no right to interfere in.

I personally am not inclined to take a strong stand on this issue, but if I were to side with the libertarians (which is my natural inclination), I would nevertheless also support a steep sin tax on drugs. Cocaine and marijuana have similar effects on society as cigarettes and drugs (some research indicates that marijuana smoke may be more dangerous than cigarette smoke). It only makes sense to tax their consumption to internalise their external costs.

There is a time and place for everything under the sun, and that includes government intrusion on individual decisions. When your decision has an impact on others, the price of that decision must account for the potential costs and benefits it will bring about.

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Infernal Ramblings is a Malaysian website focusing on current events and sociopolitical issues. Its articles run the gamut from economics to society to education.

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