Question

"The government generally levies higher Goods and Services Tax (GST) on socially undesirable products like cigarettes, tobacco, liquor etc." Identify and explain the indicated government budget objective in the above statement.

Hint:

Higher taxes on harmful goods are not just revenue-generating but also serve as a policy tool to reduce consumption of socially harmful products.

Answer 1

The government is using the tax system to achieve the objective of "Correcting market failures" or "Reducing harmful consumption." By imposing higher Goods and Services Tax (GST) on socially undesirable products like cigarettes, tobacco, and liquor, the government aims to discourage their consumption due to their negative impact on public health. This is a form of "sin tax" which is also intended to generate revenue that can be used for welfare and public health purposes. It reflects a budgetary strategy to promote social welfare and regulate behavior.