Excise taxes and types of excise taxes

Excise taxes and types of excise taxes

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Created By Admin Last Updated Tue, 08-Dec-2020

Excise is specifically a duty, and excise is termed to tax when it is levied on the sale of specific goods and services. Excise taxes are an indirect tax means they are not paid directly by the customers instead is imposed on supplier or manufacturers who then includes it in the product price which is ultimately paid by the customers.

By making those products more expensive that is harmful for the consumption by customers, government collects a good sum of taxes and is good source of revenue. As in this way excise duty discourages the consumption of harmful products and making way in saving the environment from getting damaged. Excise duty covers alcohols, gasoline, cigarettes, tobacco, and some energy products. These products are often considered as superfluous and raising taxes on such goods reduces the amount of their use and in this context they are also known as “sin taxes”. Excise taxes also imply on activities such as highway usage by trucks and items such as motor fuels that are frequently used.

Types of Excise Taxes:

                     I.        According to value or Ad Valorem: The word “Ad Valorem” means “according to value”, these taxes are levied on a fixed percentage of the value of a good and service. This tax is flexible in nature as it depends on the value of asset or price of good.

Example of Ad Valorem taxes - property taxes, as the rates are applied to the value of the property.

                    II.        Specific or per unit tax: these taxes are charged according to a specific value or ‘per unit solid’ like gasoline taxes that are paid per 9/10 of a gallon. It is thus proportional to the particular quantity of a product sold regardless of its price.

Example of specific taxes – taxes connected to tobacco.


Excise taxes are employed as a user fee to generate revenue from people who use particular government service. Apart from this, excise taxes are powerful tool for reducing the consumption of tobacco, excessive drinking. Due to the introduction of excise taxes, the reduction in consumption pattern of the products and services that are harmful for human health and environment is observed.