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  • Sin Taxes: How Much More do we Have to Pay for Our Sins?

Sin Taxes: How Much More do we Have to Pay for Our Sins?

23 February 2017

By: Keelen Snyders, Trainee, BDO Tax Services

Mr Pravin Gordhan, in his 2017 budget speech delivered earlier today, announced an increase in sin taxes for alcohol and tobacco of between 6 and 10 per cent. This is likely to be comparatively higher than the 2016 increase of 7%. Although, we have become accustomed to annual sin tax increases, these increases have become increasingly controversial, especially in light of the proposed sugar tax that is soon to be introduced.

The phenomenon of “sin taxes” has come under closer scrutiny with the proposed sugar tax. There have been debates on whether the sugar tax aims to be a sin tax or whether it is in fact a revenue instrument. In light of this, it would be interesting to take a look at the history of sin taxes and why it has been implemented in South Africa.

Sin taxes are primarily used to reduce consumption of sin goods such as cigarettes and alcohol. However, most of these taxes have a very nice revenue potential as well. An increase in the number of goods being classified as sin goods may be indicative of a change towards using these taxes as revenue generators.

The price elasticity of the sin goods always need to be considered with new introductions or rate increases as consumers may not alter their consumption pattern, which would defeat the stated objective of the sin tax not being achieved. Levying sin taxes (or increasing these taxes) on price inelastic goods, may also be a strong indication that government has deviated from the real purpose of a sin tax.

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