The move is expected to increase collections, strengthen compliance, and, of course, promote public health. 

But in India, it is not just cigarettes, sugary drinks, or pan masala that are categorised as sin goods; luxury cars, motorcycles, and online gaming, among others, come under the same bracket. Several countries, including Singapore, levy hefty taxes on high-end vehicles, but they do not classify them as sin goods.

Tax experts agreed that the complexity of calculating the sin tax and its auditing dynamics, along with other levies such as excise and basic customs duties, has made things worse for India Inc. 

Tax Structure

The shift in the tax structure, intended as a deterrent, as most of these products are considered harmful for health or society, requires significant adjustments in the filing process. This has already led to confusion and could further result in under-reporting and fraudulent auditing. That apart, this could only propel the parallel economy and boost counterfeit products.

Take the case of cigarettes or other tobacco items that fall under the 40% tax slab.

The sin tax, which helps in boosting revenues for the government without any hue and cry, is also meant to be something for public good. If you take the case of tobacco, no government would want to be seen as advocating its consumption, and this is definitely required to promote public health

— Manoj Mishra, Partner & Tax Controversy Management Leader, Grant Thornton Bharat

Pointing out that this is still significantly lower than the World Health Organization recommended 75% tax rate for tobacco products, Mishra said that the additional revenue helps the government in redirecting the amount towards other social schemes.

The government mops up about ₹70,000 crore annually through sin tax, but due to the complicated tax structure, compliance cost has become a headache.

Notably, the GST Council, headed by Finance Minister Nirmala Sitharaman, in September decided to continue with the compensation cess and a 28% indirect tax rate applicable on a few sin or demerit goods such as tobacco products until the Centre is able to fully service loans taken to compensate states against the projected revenue shortfall for moving into the GST structure. Once that is complete, these items will attract 40% tax.

Cause For Concern

According to the Global State of Tobacco Harm Reduction, the total number of smokers in India in 2024 was about 1,002 million. The number was 80,481,112 in 2020. Similarly, demand for pan masala is also rising. The pan masala market in India stood at around ₹48,455.9 crore in 2025. An IMARC study expects it to go up to ₹67,034.8 crore by 2034.

Despite high tax rates on cigarettes or pan masala, data reveal that the number of smokers or those consuming pan masala has been increasing in India. 

Sources said that the smokers who rely on “illegal” sources of cigarettes, escaping regulatory ambit, could pose greater health challenges. 

Now let’s look at alcohol. Though it is not covered under GST and continues to attract excise tax, which varies from state to state, it is seen as a sin product. 

Excessive taxation has a propensity to lead people to act in a particular manner, especially in a country like India, which may not be beneficial to the authorities

— Vinod Giri, Director-General, Brewers' Association of India

Giri pointed out that most countries follow the ad quantum tax structure in the case of liquor—the rate is set based on the absolute quantity of alcohol content. 

“This way of computing is more apt and effective,” he noted.

Sin To Own A High-End Vehicle?

Now, while the implementation of the sin tax on sugary drinks, tobacco, or pan masala is a positive move aimed at promoting public health, it is also somewhat linked to social perceptions.

Why, otherwise, would high-end vehicles be put under the sin category?

A higher “sin tax” on such high-end luxury items has led to a booming parallel economy and an illegitimate market.

Mishra added that categorising luxury cars as sin items makes little sense.

According to the government’s statements issued from time to time, high-end vehicles and other luxury items such as smartphones have been regularly seized in raids conducted by authorities.

India is ranked among the top countries levying the highest taxes on luxury cars.

However, India is not alone in setting high taxes on luxury cars. Take the case of Singapore, which otherwise has a low and competitive tax framework, but levies higher-than-usual tax on cars to discourage congestion. The country charges an additional registration fee that could range anywhere between 100% and over 300% on the car's open market value.

Sin Tax Nurturing Parallel Economy

Late Finance Minister Arun Jaitley, under whom the GST structure was launched in 2016, had advocated for a lower tax regime. He maintained that India’s traditional tendency to fix high tax rates has led to tax evasion while nurturing the parallel economy.

But Indian tax experts noted that a country like Singapore, which has fixed heavy taxes on certain items, otherwise has a low, simple, and efficient tax structure.

In India, the overall tax structure is complex and full of ambiguity. Despite efforts aimed at streamlining the tax structure, complications remain that lead to disputes, denting the ease of doing business environment

— An analyst (on the condition of anonymity)

Though the government is looking into issues related to compliance to plug leakages, the country’s tax structure needs to be simplified. The current structure has significantly added to compliance costs, which impact business operations.

Should the sin tax as a category in India be abolished, an exercise that will make the tax structure more efficient and seamless? While hefty taxes for certain products that pose challenges for public health are needed and are welcome, it is important to ensure that the overall tax structure, filing, and reporting processes are made simple, efficient, and increase compliance. Until that is done, sin taxes have little meaning.