Accise

What Is Accise?

Accise refers to an indirect tax levied on the manufacture, sale, or consumption of specific goods and services within a country. It is a form of taxation categorized under consumption tax, meaning the burden of the tax ultimately falls on the consumer through higher prices. Unlike a general sales tax, an accise (often called an "excise tax" or "excise duty" in English-speaking contexts) is applied to a select list of items, such as tobacco, alcohol, fuel, and luxury goods. Governments impose an accise to generate government revenue, deter the consumption of certain products deemed harmful, or fund specific public services.

History and Origin

The concept of an accise, or excise tax, has a long and varied history, dating back to ancient civilizations. For instance, records indicate that a form of accise was levied on oil and beer in ancient Egypt around 3000 B.C.²⁶. In Europe, excise duties gained prominence in the 16th and 17th centuries, notably in Holland and Great Britain, where they were introduced to protect domestic production and generate significant revenue²⁴, ²⁵.

In the United States, one of the earliest and most notable instances of an accise was the whiskey tax, proposed by Secretary of the Treasury Alexander Hamilton in 1791 to help pay off debts from the American Revolutionary War²², ²³. This tax, levied on distilled spirits, met with strong opposition from farmers in Western Pennsylvania who often distilled their grain into whiskey as a more transportable commodity. Their resistance escalated into what became known as the Whiskey Rebellion of 1794, a pivotal moment that tested the authority of the nascent U.S. federal government²⁰, ²¹. President George Washington personally led a militia to quell the uprising, ultimately asserting federal supremacy¹⁸, ¹⁹. The whiskey accise was eventually repealed in 1802 by President Thomas Jefferson¹⁶, ¹⁷.

Key Takeaways

• Accise is an indirect tax applied to specific goods or services, rather than a broad tax on all transactions.
• Common items subject to an accise include alcohol, tobacco, gasoline, and luxury items.
• Governments use an accise for revenue generation, to discourage consumption of certain products (often called sin taxes), or to fund specific projects.
• The tax burden of an accise typically falls on the end consumer, as it is incorporated into the product's price.
• Historically, an accise has been a significant source of government funding, though its proportion of total revenue has generally declined in modern developed economies.

Interpreting the Accise

An accise is typically a per-unit tax (e.g., a fixed amount per gallon of fuel, per pack of cigarettes, or per liter of alcohol) or a percentage of the wholesale or retail price. When an accise is imposed, it increases the cost of production or distribution for businesses, which generally pass this increase on to consumers through higher prices. The effectiveness of an accise in discouraging consumption depends largely on the price elasticity of the taxed good. For goods with inelastic demand (like tobacco or essential fuels), consumers may continue to purchase them despite the price increase, leading to stable government revenue but less impact on consumption patterns. Conversely, for goods with elastic demand, an accise can significantly reduce consumption.

Hypothetical Example

Consider a country that imposes an accise on sugary beverages to promote public health. Suppose the accise is set at $0.10 per liter of sugary drink.

1. Manufacturer's Cost: A beverage manufacturer produces a new soda. The base cost of producing one liter of soda is $0.50.
2. Accise Application: When the soda is produced, the manufacturer incurs the $0.10 accise per liter. Their total cost (excluding profit margin) for that liter is now $0.50 (production) + $0.10 (accise) = $0.60.
3. Wholesale Price: The manufacturer sells the liter of soda to a distributor for, say, $0.80. This price already incorporates the accise and their profit margin.
4. Retail Price: The distributor sells to a retailer, who then sells to the consumer. By the time the soda reaches the consumer, its retail price might be $1.50, reflecting all costs, taxes, and markups along the supply and demand chain. The consumer pays the accise implicitly as part of the higher purchase price.

In this example, the $0.10 accise contributes to government revenue and is intended to make sugary drinks less affordable, potentially reducing their consumption over time.

Practical Applications

Accise taxes are widely applied globally as part of a nation's fiscal policy. Common applications include:

• Public Health and Behavior Modification: Often termed "sin taxes," an accise on products like tobacco and alcohol aims to discourage their consumption due to associated health and social costs. For example, some countries use increased excise duties on tobacco to fund universal health coverage and social safety nets¹⁵.
• Environmental Protection: An accise may be levied on carbon emissions, plastic bags, or certain fuels to incentivize environmentally friendly behaviors and fund environmental initiatives. The federal motor fuel accise in the U.S. has funded the Highway Trust Fund since 1956¹³, ¹⁴.
• User Charges: An accise can serve as a "user fee" to fund specific services that benefit the consumers of the taxed product. For instance, gasoline accise taxes often fund road construction and maintenance, and airline ticket taxes contribute to airport and air traffic control infrastructure¹².
• Luxury Goods: Historically, an accise on items like jewelry, furs, or yachts aimed to tax wealthier individuals and raise revenue from discretionary spending. However, many of these "luxury taxes" have been repealed due to their negative impact on specific industries¹¹.
• Revenue Generation: While their share of total government revenue has declined in many developed countries since the mid-20th century, accise taxes still provide a significant, albeit smaller, contribution to national treasuries⁹, ¹⁰. For example, in FY2020, federal excise taxes constituted 2.5% of total federal tax receipts in the United States⁸.

Governments often review and adjust accise rates as part of their broader economic policy based on changing revenue needs, social priorities, or economic conditions⁷.

Limitations and Criticisms

Despite their widespread use, an accise faces several criticisms:

• Regressivity: A primary criticism is that an accise can be regressive, meaning it disproportionately affects lower-income households. Since the tax is applied uniformly to all consumers of the product, those with less disposable income spend a larger percentage of their income on these taxed items compared to wealthier individuals⁵, ⁶. For example, a fixed accise on gasoline or tobacco will consume a larger share of a low-income family's budget.
• Economic Distortion: An accise can distort market behavior by making taxed goods less competitive or by driving consumers towards untaxed alternatives. This can impact specific industries and potentially lead to job losses in those sectors.
• Black Markets: High accise rates on goods like tobacco or alcohol can incentivize the growth of black markets and illicit trade, as consumers seek to avoid the higher prices, making the tax harder to collect and enforce.
• Limited Revenue Growth: Unlike taxes based on value (like a value-added tax or income tax), a per-unit accise does not automatically increase with inflation or economic growth. This means that legislative action is often required to adjust rates to maintain their real value or increase revenue, which may not keep pace with government spending needs³, ⁴.
• Volatile Revenue: Revenue from an accise can be volatile, especially if the tax is successful in discouraging consumption or if consumption patterns change rapidly². This makes it less predictable as a long-term funding source compared to broader-based taxes.

The Organisation for Economic Co-operation and Development (OECD) notes that while accise taxes can target societal costs, their revenue tends to be volatile and policymakers should ensure they are well-designed to mitigate negative impacts¹.

Accise vs. Sales Tax

While both accise and sales tax are consumption taxes, they differ fundamentally in their scope and application:

Confusion often arises because both taxes increase the final price paid by the consumer. However, an accise is a targeted levy on certain products, whereas a sales tax is a more general tax applied across a wide range of consumer purchases. For example, gasoline has both an accise (per gallon) and a sales tax (percentage of price) in many jurisdictions.

FAQs

Q: What kinds of goods are typically subject to an accise?

A: Common goods subject to an accise include tobacco products, alcoholic beverages, gasoline and other fuels, and sometimes luxury goods or specific services like airline travel. The specific items can vary significantly by country or region.

Q: Who pays the accise?

A: While the accise is typically levied on manufacturers, importers, or distributors, it is generally passed on to the consumer in the form of higher prices. Therefore, the economic burden of the accise ultimately falls on the individual who purchases the taxed good or service.

Q: Are all consumption taxes an accise?

A: No. An accise is a specific type of consumption tax that targets a narrow range of goods or services. Other forms of consumption taxes include a general sales tax or a value-added tax (VAT), which apply more broadly to many purchases.

Q: Why do governments impose an accise?

A: Governments impose an accise for several reasons: to raise government revenue, to discourage the consumption of certain goods (like tobacco or alcohol) that are considered harmful to public health or society, or to fund specific programs or infrastructure projects (e.g., fuel taxes for road maintenance).