EXCISE TAXATION POLICY
AND PRACTICE
LIZ ALLEN (Drawing on material
published by Professor Sijbren
Cnossen)
September 2015
EXCISE TAXATION
PRINCIPLES
— “SIN TAXES” Excise duties may be broadly defined to
include taxes on smoking, drinking, gambling, polluting
(including energy consumption), and driving.
— Excise duties are selective and discriminatory in intent.
— Excise tax liabilities are often measured quantitatively and
enforcement should be subject to physical and accounting
controls.
— There are usually a comparatively small number of
taxpayers – often multinationals providing important
amounts of revenue in taxation.
FEATURESOFEXCISETAXES
Excise duties have, traditionally, been key sources of
revenue, because taxable goods are — widely consumed;
— there are few producers (except wine and beer);
— there are no readily available substitutes; and
— administration and compliance costs are low.
COMPARISONWITHVAT
— VAT is a general consumption taxes covering all goods and services,
unless specifically exempted.
— VAT’s goal is revenue and compliance is controlled through accounting
checks , risk and trend analysis and intelligence.
— VAT is a transaction based tax from the perspective of the buyer, VAT is a tax on the purchase price
— from the perspective of the seller, VAT is a tax only on the value added to a
product or service, at each stage in its supply chain. The seller remits to the
government the difference between sales or “outputs” and purchases or
“inputs”.
—
— Exports are usually relieved of VAT because consumption will take
place outside the country. Imports are usually chargeable with VAT at
the same rate as domestic products.
— Subject to the turnover threshold for registration there will be a very
large number of taxpayers to control.
COMPARISONWITHIMPORT
DUTIES
— Customs duty is levied on the import or export of goods in
international trade. A tariff, which is actually a list of commodities
along with the leviable rate (amount) of customs duty, is popularly
referred to as a customs duty.
— Customs duty is calculated on the assessable value in case of items for
which the duty is levied ad valorem. For some items e.g. petroleum and
alcohol, customs duty is levied at a specific rate applied to the volume
of the import or export consignments.
— Customs duties are applied to trillions of movements of goods across
the world daily and are controlled through risk, intelligence and
random selection at borders and through audit based on risk and
compliance inland.
— Customs duties may apply identically across a Customs Union region.
GOALSOFEXCISEDUTIES
— Raise government revenue
— Compensate for externalities
— Induce changes in consumer behaviour
— Realise an objective of wider government
policy e.g. taxing fuel or electricity to reduce
environmental damage
CORRECTINGEXTERNALITIES(1)
Professor Cnossen has explained that:
— The principle is that rational, informed individuals
should make their own decisions about what to
consume and what not, but (external) costs (physical,
psychological, or financial) imposed on others should
be included in price .
— Internalization of external costs induces consumers or
users to make optimal decisions from a social point of
view, i.e., market outcomes are enhanced (not
including external costs implies subsidy).
THEEXTERNALITYCONCEPT
ANDILLICITTRADE
The externality concept is unrelated to affordability
considerations and does not take account of the impact
of illicit trade.
EXCISETAXSTRUCTURES- THEORY
Specific
— Establishes link with externality and transfer pricing
(valuation) issues do not arise
— Easier to administer and control
— Must be revalorised to keep pace with inflation
“Ad Valorem”
— Difficult to ascertain true values – an avenue for fraud
— Places higher tax burden on high cost products
— Keeps pace with price increases
INPRACTICE
Different approaches across the world:
— EU has a combination of specific and “ad valorem”
duties applicable to tobacco products and specific duty
for alcohol based on a minimum. These allow for a
very wide range of different tax burdens in EU Member
States in practice.
— Traditional protection of domestic alcohol industries
has led to a wide variation in taxing products
according to strength – even in countries with specific
based tax structures e.g. Australia, South Africa,
Southern Europe (all wine producing countries).
SOMEEXAMPLESFROM
AROUNDTHEWORLD
ALCOHOL
Australia
South Africa
TOBACCO
EU
ALCOHOLDUTIESINAUSTRALIA
— Australia’s alcohol excise regime may be one of the
most complex in the world, with different rates and
rules for different products e.g. the tax on beer differs
between bottle and keg sales, brandy is taxed at
concessional rates compared to other spirits and wine
is treated completely differently.
— Excise on alcohol is a traditional source of revenue.
Since 1983, when excise changes became linked to
movements in the Consumer Price Index, rates have
been indexed every six months.
ALCOHOLDUTIES– SOUTHAFRICA
— The SA National Treasury discussion paper on the future taxation of
alcoholic beverages in South Africa.
— South Africa applies an alcohol excise duty rate structure that
differentiates between alcoholic beverage types.
— The total consumption tax burden – excise duties plus value added tax
– as a percentage of the weighted average retail selling price for wine,
beer and spirits is currently set at 23 percent, 35 percent, and 48
percent, respectively.
— Appropriate excise tax rates for different types of alcoholic beverages
are informed by a combination of factors. To fully 'price' the external
costs of alcohol abuse, excise duties on alcoholic beverages would need
to increase significantly.
TOBACCOTAXATION- EU
— Council Directive 2011/64/EU of 21 June 2011:
— defines the various categories of manufactured tobacco
(cigarettes, fine cut tobacco intended for the rolling of
cigarettes, cigars and cigarillos, other smoking tobacco);
— lays down the general principles governing taxation of
manufactured tobacco;
— provides for an overall minimum excise duty of 60% of
the weighted average retail selling price of cigarettes*;
— provides for a minimum amount of excise duty of 90
Euro per 1000 cigarettes** irrespective of the weighted
average retail selling price;
*as of Jan 2014 – escape clause applies (if excise duty at WAP is already more than 115 EUR per 1000
cigarettes
** as of Jan 2014 – derogation until 2018 for selected accession countries
TOBACCOTAXATION–EU(cont.)
determines the minimum rates for fine-cut smoking
tobacco intended for the rolling of cigarettes, namely
50% of the weighted average retail selling price or 60
Euro per kilogram (by Jan. 2018);
— determines the minimum rates for cigars and cigarillos,
namely 5% of the retail selling price inclusive of all taxes
or 12 Euro per 100 items or per kilogram; and
— determines the minimum rates for other smoking
tobaccos, namely 20% of the retail selling price inclusive
of all taxes, or 22 Euro per kilogram.
—
COMPARISONOFCIGARETTEPRICES
INTHEEU
Source: ITMAC (Irish Tobacco Manufacturers’ Advisory Committee) - http://www.itmac.ie/?content=price-comparison-of-cigarettes-in-Europe
SOUTHAFRICACONSULTATION
ONALCOHOLDUTIES
— It is recognized that higher excise rates may exacerbate social problems
arising from excessive alcohol consumption as heavy drinkers turn to
cheaper, or illicit, alcoholic beverages.
— The proposals should be seen as part of a larger package of measures to
address problems associated with alcohol consumption and should
look at the overall effectiveness of the alcohol excise tax regime, the
costs and complexity of tax administration and compliance, and the
potential impact on the economy and on illicit trade when deciding on
reform of the current excise tax regime for alcoholic beverages.
— The consultation considers whether a uniform tax based on alcohol
content, rather than by product type, should be considered.
EXCISESONLUXURYGOODS
— Excises on luxury goods not advocated:
— taxable base is very small;
— progressivity is negligible and should be promoted
through the income tax (which is paid by the rich who
buy luxury goods) and VAT which is levied on the selling
price at each stage; and
— administration (ad valorem rate) is problematic.
TAXTHEORY– RELATIONSHIPBETWEEN
IMPORTDUTIES/EXCISE/VAT
Professor Cnossen explains that:
— The protectionist function of import duties takes precedence
over the externality-correcting function of the excises, which
take precedence over the revenue-raising function of the
VAT.
— Thus;
— import duties should be imposed on the c.i.f. value of
imports;
— excise duties should be imposed on the import-duty
inclusive value of imports; and
— VATs should be imposed on the import- and excise-duty
inclusive value of imports.
REFERENCEMATERIAL
— Theory and Practice of Excise Taxation: Smoking, Drinking, Gambling,
Polluting, and Driving, Oxford: Oxford University Press, 2005
— Excise Tax Policy and Administration in Southern African Countries,
Pretoria: UNISA Press, 2006
— Taxation and Regulation of Smoking, Drinking, and Gambling in the
European Union, FinanzArchiv 64/4, 2008
— Excise Taxation in Australia, ch. 10 in Australia’s Future Tax and
Transfer Policy Conference (Henry Tax Review), Melbourne: University
of Melbourne, 2010; reworked as The Economics of Excise Taxation, ch.
7 in E. Albi and J. Martinez-Vasques (eds.), The Elgar Guide to Tax
Systems, London: Edward Elgar Publishing, 2011
THANK YOU