Excise

Excise or Excise tax (sometimes called an excise duty), is a type of tax charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country).

Typical examples of excise duties are taxes on tobacco, alcohol and gasoline.

Definition

Excise duty is a tax levied on the producer of certain goods, commodities and activities. It is a separate tax from VAT, and is different from it in that VAT solely affects the consumer (although, naturally, the consumer also indirectly pays the excise, as it is included in the eventual sale price of the product). The excise duty can account for as much as half the price of the goods subject to it, and sometimes more.

The Oxford Dictionary gives the origin of the word to be the Dutch accijns, itself presumed to originate from the Latin accensare - "to tax".

What is interesting about excise tax is how vague it actually is - it would be difficult, if at all possible, to find a precise definition explaining what it is that categorizes goods subject to excise tax. Lists of such goods are readily provided by governments, and it is possible to guess at what might be the motive for grouping such goods together; however, no explicit, formal definition is provided.

HM Revenue & Customs, for example, lists the following items, activities and general areas as being subject to excise duty: "alcohol, environmental taxes, gambling, holdings & movements, hydrocarbon oil, money laundering, refunds of duty, revenue trader's records, tobacco duty, and visiting forces", but provides no further explanation as to what links these to one another. The Australian government says that "[e]xcise duty is a tax levied on certain types of goods produced or manufactured in Australia." The New Oxford English Dictionary says the same thing: "a tax levied on certain goods and commodities produced or sold within a country and on licenses granted for certain activities" (revised second edition, 2005), but, again, no further explanation is provided as to what the word "certain" stands for.

Contrasting these official explanations to the two scholars' remarks below on the issue of excise provides some insight into what the original motive for the tax might have been:

Adam Smith says, "The motive for the implementation of excise should be nothing more than to curb the pursuit of goods and services harmful to our health and morals." Samuel Johnson, meanwhile, is somewhat more harsh in his 1755 dictionary: "Excise - A hateful tax levied on commodities, and adjudged not by the common judges of property, but wretches hired by those to whom excise is paid."

Looking at the types of goods, services and areas listed as excisable by many governments, and considering the thinkers' comments, we are led to the conclusion that excise duty was originally invented for some or all of the following reasons:

• to protect people –
  • from harming their health by abusing substances such as tobacco and alcohol, thus making excise a kind of sumptuary tax
  • from harming themselves and others indirectly and morally by engaging in activities such as gambling and prostitution (see below) (including soliciting and pimping) – thus making it a type of vice tax or sin tax
  • from harming those around them and the general environment, both from overuse of the above-mentioned substances, and including curbing activities contributing to pollution (hence the tax on hydrocarbon oil and of other environmental taxes, as in the UK), or from harming the natural environment (hence the tax on hunting) - thus also making excise a kind of pigovian tax

• to provide monies needed –
  • for the extra healthcare and other public expenditures which will be needed as a direct or indirect result of excisable activities, such as lung cancer from smoking or road accidents resulting from drink-driving
  • for defense - including taxation directly levied on other countries' militaries and/or governments, such as the UK's taxation on "visiting forces"

This latter area can go wrong if unwisely implemented: a demonstrative situation arose in 2006 around central London's congestion charge (which, although not strictly branded as an excise tax, is a sort of environmental tax, as part of its aim is to reduce pollution in busy central London), where several foreign embassies got in a heated exchange with Greater London Authority for refusing to pay the charge arguing that, as diplomatic entities, they were exempt from paying it.

• to punish –

many US states impose taxes on drugs, and the UK government imposes excise on money laundering and on "visiting forces" (which can, from a legal standpoint, also be interpreted as "invading forces"). These are, clearly, not included in the statute books because the government expects smugglers, launderers and invaders to pay for the right to conduct their harmful and illegal activities, but so that greater punishments and reparations/war reparations - based mainly around tax evasion - can be imposed in the case that the perpetrator is caught and tried. Aside from the extra revenue, this of course can also act as a deterrent.

Additional areas covered

Drugs

As already mentioned, many US states tax 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."

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.

Prostitution

Even prostitution has been proposed to bear excise tax in a bill in the Canadian Parliament:

"5.5 Implementation of a excise tax on prostitution, the brothel is taxed and passed it on."

The reasons given by 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.

Salt, paper, and windows

Excise (often under different names, especially before the 15th century, usually constituting 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, and as late as the twentieth.

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.

Window tax was slightly different, being brought in as a kind of alternative to income tax.

Examples by country

United States

Main article: Excise tax in the United States

An excise is "a tax upon manufacture, sale or for a business license or charter," according to Law.com's Legal Dictionary, 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 indirect tax, or excise, 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.

Example: The Whiskey Tax that resulted in the Whiskey Rebellion which started in 1792.

United Kingdom

Main article: Her Majesty's Customs and Excise

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 the mid-17th century.

India

In India, an excise tax is levied on the manufacturer of goods when those goods leave the place of manufacture. Formerly called the Central Excise Duty, this tax is now known as the Central Value Added Tax (CENVAT). Manufacturers may offset duty paid on materials used in the manufacturing process by using that duty as a credit against excise tax through a process known as Central Value Added Tax Credit (CENVAT Credit). The offsetting process was formerly known as Modified Value Added Tax (MODVAT).

Application of duty

Stamps

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 such stamps from the government and is then obliged to affix one to every packet of cigarettes or bottle of spirits produced.

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 is 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."

• The other criticism is that as far as legal drugs are concerned (ie. 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

• Securities Turnover Excise Tax
• Customs