Excise duty is a tax levied on products earmarked for sale within a given national territory, and differ from customs duties charged on the port of entry. Excise duty works with the quantity and not value: thus the tax on alcohol is taken per hectolitre of alcohol.
Alternatively, an ad valorem tax is the value of a good or service, such as VAT. The term is derived from the term excise access: it is therefore a fee for access to the consumption of certain products.
In countries such as Canada excise taxes are imposed on jewelry, some petroleum products, heavy automobiles and air conditioners for automobiles. In addition, a tax is imposed on insurance premiums and a fee is imposed by Law on the safety of air travelers.
Customs duties and excise taxes have been the focus of disagreements, primarily in Nova Scotia, between the Crown and Parliament, on the right to impose customs duties. And they were at the center of national policy for about a century.
The government used it to negotiate rates with other countries, and guarantee national independence. Customs duties existed since the arrival of Europeans in North America.
An excise constitutes an indirect tax, implying that the producer or seller paying the tax to the authorities is likely to attempt and recoup the tax by raising the selling price. Excises are commonly levied on top of other indirect tax which include sales tax or value-added tax (VAT).
An excise is differentiated from a sales tax or value-added tax (VAT), in that an excise is normally enforced on a leaner array of products. And is usually greater, that is, it accounts for bigger portions of the actual retail prices as regards the products involved. Excise tax is also more specific to the unit of measure (e.g. the weight or volume), while a sales tax or value-added tax (VAT) is ad valorem, which means it is equivalent to value.
In general, the tax levied on alcohol, tobacco, energy products (oil, gas, etc.), and other products is considered luxury. The intent of the legislation is to discourage consumption of products considered as having negative externalities, but sometimes the excise hits tea or coffee although their justification on these products is now challenged because the goal is not to discourage their consumption.
More recently, the excise duty was introduced on certain types of transport units considered pollutants (such as air transport), or consumption of products that generate polluting waste, or detrimental to the protection of the environment (such as electronic products, some plastic packaging, etc.).