THE LIE BEHIND ‘SIN TAXES’

As the Finance Minister, fresh from being put in the uncomfortable position of having to ward off queries on weighty 10 billion shilling errors, will be reading Kenya’s budget on Thursday 10th June, it is anyone’s guess how he intends to raise the funds to arrest rampant poverty, an expenditure creeping up while revenues dwindle and still cover an ever-increasing deficit now approaching a trillion. Uhuru’s options are essentially limited to three: having the government borrow more from the local money markets, take a begging bowl to donors or, as has become the norm, raise taxes. He might do one or all the three but I am sure of one niggly  action that will be repeated; an increase on cost of beer, cigarettes and possibly fuel… the so called sin tax.

Sin taxes is a cliché term for usually heavy taxation on legal and widely used products that society frowns upon, the argument for the draconian tax regime on these products often flies in the face of logic for several reasons. Coming from the premise that taxes are a key source of revenue for governments, it follows sin taxes are aimed at raising revenue and at the same time be a deterrent to consumption of these particular products, but how then can sin taxes to be taken as a reliable source of state revenue but are supposed to reduce the consumption of the said products by the public? This is a paradox in which obviously should the sin tax succeed in its aims, the tax it generates will reduce considerably with the passage of time and ergo everyone loses! I could go into a diatribe on the senselessness of sin taxes but I believe in the interest of keeping it short I will list some points and you can agree with them or refute them.

  1. An increase in tax on a product immediately leads to a fall in the consumption, this fall continues for a number of years after this imposition and is thus not accounted for in tax projections, this basically rules out reliance on sin tax for a steady stream of revenue as often the increase in revenue from higher taxation is surpassed by loss from increasingly fewer consumers, a typical margins versus volumes paradigm.
  2. Sin tax is a class issue in the sense the poor are made to find these particular products unaffordable, they hence dabble in the partaking of illegal home-made concoctions which do nothing to add to the revenue of the government.
  3. While poor people do not necessarily drink more than the rich folks, they are made to spend more of their limited incomes on these supposedly anti-social products because of the ridiculously high tax, this then reduces the very amounts they have at their disposal which they could invest in meaningful ventures that would uplift an economy.
  4. Revenues from sin taxes are immoral if the government insists on using them to fund such things as schooling and health; why can’t they be used to rehabilitate those engaged in consumption of these products instead and hence solve the problem of decreasing revenue streams considering the number of those needing rehabilitation would reduce in tandem, furthermore this would test the claim that government spends more on the health of those who use these products as opposed to the tax accrued.
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