The term sin tax refers to an excise tax applied to goods and services that society believes support a habit viewed as a vice. Sin taxes are oftentimes applied to the sale of alcohol and tobacco as well as legalized gambling activities.
Sin taxes are levied by governments to discourage the participation in services, or the purchase of goods, viewed as immoral according to social norms. Such taxes are favored by lawmakers since they are effective at generating revenues and the impact is only felt by those using the goods or services.
Sin taxes are usually applied to adult beverages containing alcohol, tobacco products such as cigarettes, in addition to other items not considered a luxury. In addition to providing the government with a source of revenue, this tax also discourages the use of the product or service. A sin tax is also an excise tax, which means it is paid by the producer or retailers and passed onto the consumer in the form of higher prices.
Critics of sin taxes believe they are ineffective at discouraging individuals from using the vice. They also point out they are a regressive tax, which means they cause lower-income individuals to pay a higher proportion of their disposable income in taxes than higher-income individuals.