Excise taxes are levied on certain goods and services, such as clothing, gasoline, or prepared food, by local, state, or national tax agencies. They can be used instead of or in addition to income taxes, and are used to generate revenue for community improvements. Different variations of the tax exist, and some countries charge more than one type of consumption tax. The US commonly refers to excise tax as sales tax, while the UK uses value added tax. Excise duties are also applied to products such as gasoline, alcohol, and tobacco. The idea of a consumption tax is different from that of an income tax, and while some argue that a purchase-based tax system would encourage citizens to save money and create a more efficient economy, others argue it could create more problems for society at large.
Excise taxes are any type of taxes imposed by a local, state, or national tax agency on the purchase of certain goods and services, such as clothing, gasoline, or prepared food from a restaurant. This approach to taxes is common in many nations around the world, and can be used instead of, or in addition to, an income tax; There is an ongoing debate about the pros and cons of replacing the income tax with taxes on purchases only. The collection of an excise tax has a long history, and is often used today as a means of raising money to improve the local community in various ways, such as generating revenue that can be used to improve the operations of schools located within a city. There are different variations of the tax (sales tax, value added tax (VAT) and consumption tax) and some countries charge more than one type of consumption tax to citizens, depending on the situation.
world variations
In the United States, an excise tax is commonly known as a sales tax and is generally collected from the consumer when the product or service is purchased. The seller collects the tax, which is then collected by the local government to be used for improvements within the community. The rate can vary between states, and is usually decided by the local government. It is not unusual for a sales tax to be referred to in a way that describes where the collected tax revenue goes, such as a local school tax.
In the UK, value added tax, a type of excise tax, is levied in situations involving goods that are purchased with the intention of resale. Essentially, in addition to the taxes paid when purchasing goods, any value added that the original buyer earns from selling the product is also taxed when the product is sold. For example, if a man buys a pair of shoes for $50 United States dollars (USD) he is taxed on that purchase, and if he later sells them for $75, an added value of $25 is created. VAT will be charged on the value added amount of $25 USD, and the person purchasing the shoes will be charged VAT on the total of $75 USD.
In some cases, a government does not directly collect a consumption tax, but a third party, which is known as consumption tax. This third party can change the price of a product to increase or decrease the amount of tax revenue that is sent to the government. Some examples of products that include excise duties are gasoline, alcohol, and tobacco. Consumers pay a type of excise tax on these products, but the price of the product can fluctuate, depending on the tax rate required. Additionally, consumers do not pay the tax directly to the government, and the fee is often included in the price of the product. This type of tax is implemented in the US, India, and Canada, to name a few.
Consumption versus income tax
The idea of a consumption tax is somewhat different from that of an income tax. A purchase-based tax focuses solely on how much money is spent paying for certain items and services. By contrast, the income tax focuses not on the spending habits of citizens, but on the amount of wealth they accumulate as income from employment and other means. Many countries, such as the US and Australia, charge income tax and at least one type of tax on purchases. Many citizens argue that moving to a tax system that charges citizens only for purchases, and not for income, is beneficial because it would encourage citizens to save money and create a more efficient economy; however, some argue that such a system could be difficult for some, such as the lower class and retirees living on a fixed income, and may create more problems for society at large.
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