An excise or excise tax (sometimes called a duty of excise or a special tax) may be defined broadly as an inland tax on the production or sale of a good,[1] or narrowly as a tax on a good produced within the country. Excises are distinguished from customs duties, which are taxes on importation. Excises, whether broadly defined or narrowly defined, are inland taxes, whereas customs duties are border taxes.
An excise is 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 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 taxes).
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Tax is notable for vagueness of definition. According to the New Oxford English Dictionary (Revised 2nd Ed., 2005), an excise is "a tax levied on certain goods and commodities produced or sold within a country and on licenses granted for certain activities" (emphasis added). The formula "produced or sold" is applicable to both domestic and foreign products. But the word "certain" is not further explained in the definition — or even in the etymology, according to which the word excise is derived from the Dutch accijns, which is presumed to come from the Latin accensare, meaning simply "to tax".
It would be impossible to give a general formula predicting which goods are subject to excise. Lists of such goods are readily provided by governments, and from each list one may be able to infer the motives for grouping such goods together; however, no explicit formula appears to be provided by any one government. For example:
In Australia, where the Constitution stipulates that only the Federal Parliament may impose duties of excise, the meaning of "excise" is not merely academic, but has been the subject of numerous court cases. Notwithstanding the terminology preferred by the Taxation Office, the High Court of Australia has repeated 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. The fact that an "excise" need not discriminate between local and imported goods seems to imply that duties levied by Australian States on sales of livestock and registrations of new vehicles are duties of excise,[4] while the wide view of the taxable "step" seems to imply that even the payroll taxes levied by the States are excises.[5] Whatever the merits or demerits of such arguments, it is clear that the constitutional meaning of "excise" is wider than the everyday meaning.
In defence 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."[6] 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."[7]
Deducing from the types of goods, services and areas listed as excisable by many governments, and considering the thinkers' comments, a logical conclusion might be that excise duty was originally invented for some or all of the following reasons:
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:
There are at least two major criticisms of such legislation, however - see below.
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.[9]
Prostitution has been proposed to bear excise tax in separate bills in the Canadian Parliament (2005), and in the Nevada Legislature (2009) - proposed wordings:
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.[12]
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,[13] and as late as the twentieth.[14]
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.[15]
Window tax was slightly different, being brought in as a kind of alternative to income tax.
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.
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.[citation needed]
Example: The Whiskey Tax that resulted in the Whiskey Rebellion which started in 1792.
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.
In India, an excise tax is levied on the service industry. 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).
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.
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.)
There are at least two major criticisms of excise legislation on drugs -
EXCISE (derived through the Dutch, excijs or accijs, possibly from Late Lat. accensare, - ad, to, and census, tax; the word owes something to a confusion with excisum, cut out), a term now well known in public finance, signifying a duty charged on home goods, either in the process of their manufacture, or before their sale to the home consumers. This form of taxation implies a commonwealth somewhat advanced in manufactures, markets and general riches; and it interferes so directly with the industry and liberty of the subject that it has seldom been introduced save in some supreme financial exigency, and has as seldom been borne, even after long usage, with less than the ordinary impatience of taxation. Yet excise duties can boast a respectable antiquity, having a distinct parallel in the vectigal rerum venalium (or toll levied on all commodities sold by auction, or in public market) of the Romans. But the Roman excise was mild compared with that of modern nations, having never been more than centesima, or 1%, of the value; and it was much shorter lived than the modern examples, having been first imposed by Augustus, reduced for a time one-half by Tiberius, and finally abolished by Caligula, A.D. 38, so that the Roman excise cannot have had a duration of much more than half a century. Its remission must have been deemed a great boon in the marts of Rome, since it was commemorated by the issue of small brass coins with the legend Remissis Centesimis, specimens of which are still to be found in collections.
The history of this branch of revenue in the United Kingdom dates from the period of the civil wars, when the republican government, following the example of Holland, established, as a means of defraying the heavy expenditure of the time, various duties of excise, which the royalists when restored to power found too convenient or too necessary to be abandoned, notwithstanding their origin and their general unpopularity. On the contrary, they were destined to be steadily increased both in number and in amount. It is curious that the first commodities selected for excise were those on which this branch of taxation, after great extension, had again in the period of reform and free trade been in a manner permanently reduced, viz. malt liquors, and such kindred beverages as cider perry and spruce beer. The other excise duties remaining are chiefly in the form of licences, such as to kill game and to use and carry guns, to sell gold and silver plate, to pursue the business of appraisers or auctioneers, hawkers or pedlars, pawnbrokers or patent-medicine vendors, to manufacture tobacco or snuff, to deal in sweets or in foreign wines, to make vinegar, to roast malt, or to use a still in chemistry or otherwise. It may be presumed that the policy of the licence duties was at first not so much to collect revenue, though in the aggregate they yielded a large sum, as to guard the main sources of excise, and to place certain classes of dealers, by registration and an annual payment to the exchequer, under a direct legal responsibility. The excise system of the United Kingdom as now pruned and reformed, however, while still the most prolific of all the sources of revenue, is simple in process, and is contentedly borne as compared with what was the case in the 18th, and the beginning of the 19th century. The wars with Bonaparte strained the government resources to the uttermost, and excise duties were multiplied and increased in every practicable form. Bricks, candles, calico prints, glass, hides and skins, leather, paper, salt, soap, and other commodities of home manufacture and consumption were placed, with their respective industries, under excise surveillance and fine. When the duties could no longer be increased in number, they were raised in rate. The duty on British spirits, which had begun at a few pence per gallon in 1660, rose step by step to I is. 84d. per gallon in 1820; and the duty on salt was augmented to three or fourfold its value.
The old unpopularity of excise, though now somewhat out of date, must have had real enough grounds. It breaks out in English literature, from songs and pasquinades to grave political essays and legal commentaries. Blackstone, in quoting the declaration of parliament in 1649 that "excise is the most easy and indifferent levy that can be laid upon the people," adds on his own authority that "from its first original to the present time its very name has been odious to the people of England" (book i. cap. 8, tenth edition, 1786); while the definition of "excise" gravely inserted by Dr Johnson in the Dictionary, at the imminent risk of subjecting the eminent author to a prosecution for libel - viz. "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" - can hardly be ever forgotten.
The duties of excise in the United Kingdom were, until the passing of the Finance Act 1908, under the control of the commissioners of inland revenue; they are now under the control of the commissioners of customs; the amount raised, apart from changes in the rate, shows a fairly constant tendency to increase, and is usually regarded as one of the best tests of the prosperity of the working classes.
The spirit duty is levied according to the quantity of "proof spirit" contained in the product of distillation, and the charge is taken at three different points in the process of manufacture, the trader being liable for the result of the highest of the three calculations. What is known as "proof spirit" is obtained by mixing nearly equal weights of pure alcohol and water, the quantity of pure alcohol being in bulk about 57% of the whole. Owing to the high rate of duty as compared with the volume and intrinsic value of the spirits, the whole process of manufacture is carried on under the close supervision of revenue officials. All the vessels used are measured by them and are secured with revenue locks; the premises are under constant survey; and notice has to be given by the distiller of the materials used and of the several stages of his operations. Though the charge for duty is raised at the time when the process of distillation is completed, the duty is not actually paid until the spirits are required for consumption. In the meanwhile they may be retained in an approved "warehouse," which is also subject to close supervision.
The beer duty dates from 1880, in which year it was substituted for the duty on malt. The specific gravity of the worts depends chiefly on the amount of sugar which they contain, and is ascertained by the saccharometer.
Excise licences may be divided into - (a) licences for the sale or manufacture of excisable liquors, (b) licences for other trades, such as tobacco dealers or manufacturers, auctioneers, pawnbrokers, &c., (c) licences for male servants, carriages, motors and armorial bearings, and (d) gun, game and dog licences. Nearly the whole of the licence duties is paid over to the local taxation account.
The railway passenger duty, which was made an excise duty by the Railway Passenger Duty Act 1847, applies only to Great Britain. It is levied on all passenger fares exceeding Id. per mile, the rate being 2% on urban and 5% on other traffic.
The other items which go to make up the excise revenue are the charges on deliveries from bonded warehouses, and the duties on coffee mixture labels and on chicory.
For more detailed information reference should be made to Highmore's Excise Laws, and the annual reports of the commissioners of inland revenue, especially those issued in 1870 and 1885. Sec also Taxation; English Finance.
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