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Excise

An excise or excise tax (sometimes called a duty of excise special tax) is commonly referred to as an inland tax on the sale, or production for sale, of specific goods; or, more narrowly, as a tax on a good produced for sale, or sold, within a country or licenses for specific activities. Excises are distinguished from customs duties, which are taxes on importation. Excises are inland taxes, whereas customs duties are border taxes.

An excise is considered an indirect tax, meaning that the producer or seller who pays the tax to the government is expected to try to recover the tax by raising the price paid by the buyer (that is, to shift or pass on the tax). Excises are typically imposed in addition to another indirect tax such as a sales tax or value added tax (VAT). In common terminology (but not necessarily in law) an excise is distinguished from a sales tax or VAT in three ways: (i) an excise typically applies to a narrower range of products; (ii) an excise is typically heavier, accounting for higher fractions (sometimes half or more) of the retail prices of the targeted products; and (iii) an excise is typically specific (so much per unit of measure; e.g. so many cents per gallon), whereas a sales tax or VAT is ad valorem, i.e. proportional to value (a percentage of the price in the case of a sales tax, or of value added in the case of a VAT).

Typical examples of excise duties are taxes on gasoline and other fuels, and taxes on tobacco and alcohol (sometimes referred to as sin tax).

Contents


Definition

US households]] reporting different income levels, 1979-2007

Etymology. The word excise is derived from the Dutch accijns, which is presumed to come from the Latin accensare, meaning simply "to tax".

Regulatory and legal definitions of 'excise' vary by country. For example:

  • In India, an excise is described as an indirect tax levied and collected on the goods manufactured in India.
  • In the United Kingdom, HM Revenue and Customs lists "alcohol, environmental taxes, gambling, holdings & movements, hydrocarbon oil, money laundering, refunds of duty, revenue trader's records, tobacco duty, and visiting forces" as being subject to excise.[1] Some of the listed items are not goods, but rather services.
  • The Australian Taxation Office describes an excise as "a tax levied on certain types of goods produced or manufactured in Australia. These... include alcohol, tobacco and petroleum and alternative fuels".[2]

In Australia, the meaning of "excise" is not merely academic, but has been the subject of numerous court cases. The High Court of Australia has repeatedly held that a tax can be an "excise" regardless of whether the taxed goods are of domestic or foreign origin; most recently, in Ha v New South Wales (1997), the majority of the Court endorsed the view that an excise is "an inland tax on a step in production, manufacture, sale or distribution of goods", and took a wide view of the kind of "step" which, if subject to a tax, would make the tax an excise.

Rationale

In defense of excises on strong drink, Adam Smith wrote: "It has for some time past been the policy of Great Britain to discourage the consumption of spirituous liquors, on account of their supposed tendency to ruin the health and to corrupt the morals of the common people."[3] Samuel Johnson was less flattering in his 1755 dictionary: "EXCI'SE. n.s. ... A hateful tax levied upon commodities, and adjudged not by the common judges of property, but wretches hired by those to whom excise is paid."[4]

Monies raised through excise are often earmarked for redress of specific social costs commonly associated with the product or service being taxed. Tobacco tax revenues, for example, might be spent on government anti-smoking campaigns.

Excise duties or taxes often serve political as well as financial ends. Public safety and health, public morals, environmental protection, and national defense are all legitimate rationales for the imposition of an excise.

  • Public safety and health
    • deter individuals from harming their health by abusing substances such as tobacco and alcohol, thus making excise a kind of sumptuary tax, or
    • deter them from engaging in morally objectionable activities such as gambling and prostitution (see below) (including solicitation and pimping) thus making it a type of vice tax or sin tax
  • Environmental protection -
    • deter individuals or organizations from harming the general environment, including curbing activities which contribute to pollution, or which harm the natural environment.
  • Defense - including taxation directly levied on other countries' militaries and/or governments, such as the UK's taxation on "visiting forces"
  • Punitive - Many US states taxes on drugs, as well as the UK government impose excise on money laundering and on "visiting forces" (i.e., occupying military forces). These taxes are not considered revenue sources, but rather exist to allow governments greater leverage for punishments and reparations/war reparations - based mainly around tax evasion - which can be imposed in the event that the perpetrator is caught and tried.

Targets of taxation

Narcotics

As already mentioned, many US states tax illegal drugs, partly in order to be able to impose heavier punishments, as the Kansas Department of Revenue states on its website:

"The fact that dealing marijuana and controlled substances is illegal does not exempt it from taxation. Therefore drug dealers are required by law to purchase drug tax stamps."[5]

There are at least two major criticisms of such legislation, however - see below.

Gambling

Gambling licences are subject to excise in many countries; however, gambling itself was for a time also subject to taxation, in the form of stamp duty, whereby a revenue stamp had to be placed on the ace of spades in every pack of cards to demonstrate that the duty had been paid (hence the elaborate designs that evolved on this card in many packs as a result). Since stamp duty was originally only meant to be applied to documents (and cards were categorized as such), the fact that dice were also subject to stamp duty (and were in fact the only non-paper item listed under the 1765 Stamp Act) suggests that its implementation to cards and dice can be viewed as a type of excise duty on gambling.[6]

Prostitution

Prostitution has been proposed to bear excise tax in separate bills in the Canadian Parliament (2005), and in the Nevada Legislature (2009) - proposed wordings:

  • "5.5 Implementation of a excise tax on prostitution, the brothel is taxed and passed it on." (Canada)[7]
  • "An excise tax is hereby imposed on each patron who uses the prostitution services of a prostitute in the amount of $5 for each calendar day or portion thereof that the patron uses the prostitution services of that prostitute." (Nevada)[8]

The reasons given by Canadian MPs entering the bill covered many of the above-mentioned areas, including extra funding for police protection and better healthcare for the prostitutes - however, so did many of the counterarguments.[9]

Salt, paper, and windows

Excise (often under different names, especially before the 15th century, usually consisting of several separate laws, each referring to the individual item being taxed) has been known to be applied to substances which would in today's world seem rather unusual, such as salt, paper, and coffee. In fact, salt was taxed as early as the second century,[10] and as late as the twentieth.[11]

Many different reasons have been given for the taxation of such substances, but have usually - if not explicitly - revolved around the scarcity and high value of the substance, with governments clearly feeling entitled to a share of the profits traders make on these expensive items. Such would the justification of salt tax, paper excise, and even advertisement duty have been.[12]

The window tax was introduced with the aim of raising revenue from wealthy persons who, it was thought, would be likely to live in large houses with many windows.

Examples

Canada

Both the federal and provincial governments impose excise taxes on inelastic goods such as cigarettes, gasoline, alcohol, and for vehicle air conditioners. A great bulk of the retail price of cigarettes and alcohol are excise taxes. The vehicle air conditioner tax is currently set at $100 per air conditioning unit. Canada has some of the highest rates of taxes on cigarettes and alcohol in the world. These are sometimes referred to as sin taxes.

United States

An excise is "a tax upon manufacture, sale or for a business license or charter," according to Law.com's Legal Dictionary[13] and is to be distinguished from a tax on real property, income or estates."

In the United States, the term "excise" means: (A) any tax other than a property tax or capitation (i.e., an excise is an indirect tax in the constitutional law sense), or (B) a tax that is simply called an excise in the language of the statute imposing that tax (an excise in the statutory law sense, sometimes called a "miscellaneous excise"). An excise under definition (A) is not necessarily the same as an excise under definition (B), but the reverse is false.

Both the federal and state governments levy excise taxes on goods such as alcohol, motor fuel, and tobacco products. Even though federal excise taxes are geographically uniform, state excise taxes vary considerably. However, taxation constitutes a substantial proportion of the retail prices on alcohol and tobacco products.

Local governments may also impose an excise tax. For example, the city of Anchorage, Alaska charges a cigarette tax of $1.30 per pack, which is on top of the federal excise tax and the state excise tax. In 2011, the United States federal excise tax on gasoline was 18.4 cents per gallon (4.86  /L) and 24.4 cents per gallon (6.45  /L) for diesel fuel. [14]

United Kingdom

Her Majesty's Customs and Excise (HMCE) was, until April 2005, a department of the British Government in the UK. It was responsible for the collection of Value added tax (VAT), Customs Duties, Excise Duties, and other indirect taxes such as Air Passenger Duty, Climate Change Levy, Insurance Premium Tax, Landfill Tax and Aggregates Levy. It was also responsible for managing the import and export of goods and services into the UK. HMCE was merged with the Inland Revenue (which was responsible for the administration and collection of direct taxes) to form a new department, HM Revenue and Customs, with effect from 18 April 2003.

The tax was first implemented in the UK under this name in the mid-17th century.

India

Main article: Central Board of Excise and Customs

In India, almost all manufactured products are included for excise duty. In India, for getting excise tax, Govt. of India has made Automation of Central excise and service tax with this, manufacturer can easily pay their excise tax online on every 10th of following the month through ER -1. [15]....

Machinery of implementation

In many countries, excise duty is applied by the affixation of revenue stamps to the products being sold. In the case of tobacco or alcohol, for example, the producer buys a certain bulk amount of excise stamps from the government and is then obliged to affix one to every packet of cigarettes or bottle of spirits produced.

A government-owned alcohol monopoly is another way to ensure payment of the taxes.

Criticisms

Critics of excise tax - such as Samuel Johnson, above - have interpreted and described excise duty as simply a government's way of levying further and unnecessary taxation on the population. The presence of "refunds of duty" under the UK's list of excisable activities has been used to support this argument, as it results in taxation being implemented on persons even where they would normally be exempt from paying other types of taxes hence why they are getting the refund in the first place.

Furthermore, excise is often somewhat similar to other taxes and sometimes doubles up with them, as in the above example, or as in the case of customs duties: since the two taxes largely apply to the same types of goods, people are forced to pay tax twice over on the same items (except in the case of duty-free) - once through excise upon purchase and a second time around through customs duties upon transportation. (A justification for this is that the country the items are being entered into is applying the customs partly for the same reasons as the original excise was charged, as it is the country of import which will suffer the ill environmental, health and social effects of, say, the cigarettes and alcohol being brought in; thus customs has many similar pros and cons as has excise.)

Drugs

There are at least two major criticisms of excise legislation on drugs:

  • One is that, while it acts as a deterrent, it has also been argued that the state in question is able to gain revenues, while the legislation protects the anonymity of the dealers - as in the example of Kansas:
"A dealer is not required to give his/her name or address when purchasing stamps and the Department is prohibited from sharing any information relating to the purchase of drug tax stamps with law enforcement or anyone else." [5]
  • The other criticism is that as far as legal drugs are concerned (i.e. medicines and pharmaceuticals) these are also subject to taxation in some countries, notably India. This has raised controversy about the fact that this tax leads to hugely inflated prices of ordinary and even potentially lifesaving medication.

See also

  • Customs
  • Securities Turnover Excise Tax

References

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