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Do 'sin taxes' change anything?

Do 'sin taxes' change anything?

You have to be careful when taxing products. Levies on tea have been known to inspire wars of independence. Yet governments, having set a precedent by taxing alcohol, tobacco and fuel, are asking consumers across the world to pay for the privilege of consuming a range of hitherto-blameless items including sugary soft drinks and high-fat fast foods.

“We have seen a huge growth in the whole area and expansion into new products,” says David Duffy, Partner, Indirect Tax, KPMG in Ireland, and Head of KPMG’s Global Indirect Tax Policy Group. It is estimated that there is now a tax on sugary drinks in at least 35 countries, he points out, some 20 of which have been introduced since 2015. This shift is partly driven by changing public attitudes to what it is – and isn’t – acceptable to tax. Governments are also reacting to worries over the health and environmental impact of consuming certain products and have also found these taxes to be a politically convenient way to increase revenue. For all of those reasons, this looks like a trend that is only going to gather momentum.

My expectation is that there will be more of these taxes, perhaps on high-salt and high-fat containing foods, for example. Health will continue to be a focus in response to obesity, and environmental taxes are also well established. - David Duffy, Partner, Indirect Tax, KPMG in Ireland, and Head of KPMG’s Global Indirect Tax Policy Group.

The attraction for governments is obvious. In marked contrast to traditional revenue raisers such as taxes on corporate or personal income, ‘sin taxes’ on consumption can be less troublesome politically – voters at least have the choice of whether to pay up and continue to enjoy their favorite vice, or save money and abstain. “The feeling is that governments have to start somewhere, and it can be more difficult for people to argue against a tax, which at least in theory is designed to make them healthier,” Duffy adds.

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