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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, 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).


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 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, but offers no explanation of what these items have in common, apart from being excisable. Some of the listed items are not even 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" (emphasis added). What the Office calls an "excise" on locally produced goods is typically matched by what it calls a "customs duty" on comparable imported goods. But there is no general formula indicating which goods are subject to the duties in question.

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 Australiamarker 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, while the wide view of the taxable "step" has led to claims that even the payroll taxes levied by the States are excises. Whatever the merits or demerits of such claims, it is clear that the legal 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." 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."

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:

  • 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 solicitation 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 Londonmarker), 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 included in the statute books not 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.

Targets of taxation


As already mentioned, many US states tax drugs, partly in order to be able to impose heavier punishments, as the Kansasmarker 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 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 has been proposed to bear excise tax in separate bills in the Canadian Parliamentmarker (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) ;
  • "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)

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.

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

An excise is "a tax upon manufacture, sale or for a business license or charter," according to'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

Her Majesty's Customs and Excise (HMCE) was, until April 2005, a department of the British Government in the UKmarker. It was responsible for the collection of Value added tax , 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).

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 such 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 -

  • 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 Indiamarker. This has raised controversy about the fact that this tax leads to hugely inflated prices of ordinary and even potentially lifesaving medication.

See also


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