Excise Tax
March 14, 2009
Excise Tax is a tax on the production or sale of any goods. It is also called Excise Duty sometimes and, unlike customs duties which are charged on goods which come from outside the country, is primarily charged on goods produced in the country. Typically, Excise Tax is charged on alcohol, gasoline and tobacco.
Excise differs from VAT In that the latter only affects the customer, although the customer does indirectly pay excise because it is included in the final price of the goods purchased. Excise duties are often responsible for up to half of the retail price of the products which are subjected o it, and sometimes beyond that. Usually, excise is calculated at a fixed amount on a unit of measure as with cents on the gallon, compared with a percentage of the sale price, which happens with sales tax.
It isn’t easy to define excise tax, or to define the categories of goods which are subject to taxation under excise. Most governments provide lists of the goods, although it is difficult to recognize a pattern in the categorization of these goods. Examples of descriptions provided by some governments include:
United Kingdom: “Gambling, Alcohol, hydrocarbon oil, environmental taxes, holdings & movements, refunds of duty, tobacco duty, visiting forces, revenue trader’s records and money laundering”. However, there seems to be no perceptible connection between any of these categories.
Based on the types of services, areas and goods, which are listed as subject to excise by some governments, it can be assumed that excise duty was basically invented for the following:
• For the protection of people –
o So that they don’t harm their health by the use of substances like tobacco and alcohol
o So that they don’t harm themselves and others with activities such as gambling and prostitution– thus making it a type of sin tax or vice tax
o So that they don’t harm people around them and the environment, from overusing the above-mentioned substances, this includes curbing activities that contribute to pollution (therefore the tax on hydrocarbon oil and other environmental taxes, in the UK), or from harming the natural environment
• To provide funds needed –
o For extra healthcare and other public expenses which may be needed as a result of excisable activities, such as lung cancer due to smoking or road accidents due to drink-driving
o For defense – including taxation charged on other countries’ armies and/or governments, like the UK’s taxation on “visiting forces”
This last area can be a problem if improperly implemented: a situation arose in 2006 around central London’s congestion charge (which, although not necessarily branded as excise tax, is a kind of environmental tax, in order to reduce pollution in central London), where many foreign embassies got in an argument with the Greater London Authority for refusing to pay the charges saying that, as diplomatic bodies, they should be exempt from paying it.
• As punishment –
Many US states charge taxes on drugs, and the UK government charges excise on money laundering and on “visiting forces”. These are, obviously not included in the statute books since the government expects launderers, smugglers and invaders to pay for the right to conduct their illegal activities, but so that greater punishments based on tax evasion – can be charged in the case that the culprit is caught and tried. Aside from the extra income it can also act as a deterrent.
Hence, Excise Tax has been charged on a variety of things such as drugs, gambling, prostitution, salt, pepper, coffee and windows, over time. Salt, in fact, was charged as early as in the second century and as recently as the 20th century.
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