In recent years, governments have been prolific in the creation of excise duties, looking to these taxes to find revenue from targeted industries or consumption profiles.
What do excise taxes have in common?
From one side of the globe to the other, different countries may apply different criteria in qualifying what is an excise duty and how some taxes should apply. But whether duties are environmental or health related, or are only imposed on certain sectors, we still can find characteristics in common.
An excise duty is first characterized by its scope of application, as, unlike broad-based taxes on consumption (such as value added tax (VAT)) they apply to specific, selective products, such as alcohol, tobacco and fuel. Excisable products typically cause some negative impacts, for example, on health or the environment, or they require long-term national public investment to produce.
“The impact of excise duty on the world economy therefore – including their impact on producing, distributing and selling all the underlying goods that are subject to tax – is as significant as the challenges that these products themselves present.“
The excise duty imposed on the product can thus be compared to a sort of “repair cost” for the incidental damages it causes to health, the environment or the public purse.
Another characteristic of excisable products is that the underlying product represents a significant industry, for which revenues and growth should not be drowned by the level of applicable duties. Therefore, despite any philanthropic reason for imposing an excise duty, governments need to find a reasonable balance between the additional cost that the duty represents, and its impact on that industry as a whole.
For instance, negative economic impacts on the tobacco industry as well as the cost to public health of tobacco use may be considered by governments, when setting out a tobacco excise duty rate.
These specific characteristics are shared by “gray” taxes (i.e., excise duties on fossil fuels), by green taxes (e.g., taxes on pollution and packaging such as on plastic bags) and by health-related taxes such as taxes on caffeinated or sugary beverages and alcohol.
Another common factor of all these taxes is the public announcements made by governments when they introduce or increase them that they aim to reduce risks whether to health, the environment or the economy. Often, however, the only directly measurable effective result may be an increase in government revenue.
What does the global excise duty landscape look like?
In 2016 we conducted a survey of the EY Indirect Tax network about existing and upcoming excise taxes imposed around the world. Our survey shows that 97% of the countries that responded have implemented excises duties on tobacco and alcohol while 78% of them apply excise duties on fuel.
These three products can be seen as the “three pillars” of traditional excise duties. However, they are not the only excisable goods by any means; different countries apply tax to a wide range of different products, including services in some jurisdictions.
In fact, it is striking to observe how excise duties can be used to target very specific sectors or consumer behaviour. For example, while Chile applies excise taxes on jewellery and precious stones, Ethiopia does the same on perfume, and Malta imposes excise taxes on chewing gum.
This indicates a wide level of local, cultural and historical specificities in the products that are considered to be “harmful” or “indulgent,” perhaps with greater variation than for any other indirect taxes applied around the world.
Specific local rules: agility for governments, confusion for business?
On top of the potential singularity of the type of goods subject to tax, international companies also have to deal with the agility of these taxes and their ability to be modified by governments in relation to their scope, rate or exemptions.
Excise duties have a significant capacity to adapt quickly to evolutions in a market, for instance, with the fast-growing development of e-cigarettes; with effect from 1 January 2017, Finland has introduced a special duty on the liquids used for these alternative cigarettes, irrespective of their nicotine content.
As a result, e-cigarettes may be treated very differently in different jurisdictions: taxed as cigarettes in some and exempt from duties in others.
These differences may apply even between countries that are linked otherwise by their indirect tax laws.
…Culled from E&Y Insights
