A tax on commercial goods produced or sold within a country is called an excise tariff. The seller or producer typically passes the additional cost that it pays to the government along to the consumer by increasing the price of its goods. Some examples of an excise tariff are taxes on gasoline and other fuels or taxes on tobacco and alcohol. The excise tariff is considered an indirect form of taxation because the government does not directly apply the tax to the end consumer.
An excise tariff typically is levied on a per-unit-of-measure basis, such as per gallon or per liter. It sometimes is confused with a sales tax, which is a tax based on a percentage of the total price. It also is confused with the value-added tax, a tax based on the value of an item. Excise tariffs on goods and services that are considered taboo for social or moral reasons sometimes are referred to as “sin taxes.”
There can be several reasons a government chooses to impose an excise tariff on items such as tobacco and alcohol. The addition of the excise tariff to the cost of the item raises the price of these products, thus deterring people from overusing or abusing these substances. The excise tariff also helps raise revenue to fund the government’s potential role in the consequences of the use of these substances. Additional public services often are needed as a result of the use or abuse of these products, such as increased healthcare costs for lung cancer from smoking tobacco or for traffic accidents resulting from drunk driving.
Many governments have excise tariffs for widely varying goods and services. In some countries, the excise tariff is implemented by revenue stamps directly attached to the products that are for sale. For example, a producer of alcoholic beverages must purchase the stamps from the government and then must attach one to each bottle or case of alcohol produced.
There is evidence that excise tariffs were being used in India as early as 300 B.C. As it currently is defined, the excise tariff was first developed by Holland during the 17th century. Over the years, many diverse products and services have been subject to excise tariffs, including salt, alcohol, paper, meat, tobacco, cheese, tires, fuel and sugar.