What is excise? Definition and examples

Excise is a tax that governments levy on certain goods and commodities. It is also a tax on licences that governments grant for certain activities. As a verb, it means to remove something, especially by cutting it out.

The government levies excise duties at the moment of manufacture of a good, rather than at sale.

We commonly associate excises with customs duties. Customs duties are taxes on pre-existing goods. The authorities levy the tax as soon as they enter the country or cross a specific border.

In this article, the term goods‘ has the same meaning as ‘products.’



Customs and Excise, UK

In the United Kingdom, HM Customs and Excise (HMCE) was a government department. Its primary responsibility was the collection of excise duties, customs duties, and other indirect taxes. In 2005, it merged with the Inland Revenue to form HM Revenue and Customs (HMRC). HM stands for Her Majesty’s.

Merriam-Webster has the following definitions of the term:

“1. An internal tax levied on the manufacture, sale, or consumption of a commodity. 2. Any of various taxes on privileges often assessed in the form of a license or fee. 3. To remove by or as if by excision.”

Excise duty
Governments across the world are looking at levying excise duties on foods associated with diet-related diseases. The UK’s Institute of Fiscal Studies says: “There have been calls for a tax on sugar, and sugar-sweetened soft drinks in particular. But the issues are more complex than may initially appear.”

Excise – tax or duty?

Technically, governments levy a tax on an individual and a duty on a product. Therefore, technically speaking, an excise is a duty and not a tax. However, very few people are aware of this difference in the meanings of tax and duty.

Therefore, communicatively speaking we could say that the term refers to either a tax or a duty. However, governments only levy excises on products, and never on individuals.

Excise vs. sales tax

The term doesn’t have the same meaning as sales tax or VAT (value added tax). There are three main differences:



– An excise is usually a per unit tax. In other words, it is an item rather than its value. It is not an ad valorem tax, which is proportional to a product’s price.

– It is a tax that applies to a very narrow range of goods. Governments typically levy excises on, for example, gasoline, diesel, tobacco, and alcoholic drinks.

– Excise duties are usually heavier than sales taxes or VAT. In other words, they account for a higher proportion of an item’s value compared to sales taxes.

Etymology of excise

Etymology is the study of the origin of words and how their meanings evolved.

Noun

With the meaning ‘tax on goods,’ the word emerged in the late fifteenth century in the English language. It came from the Middle Dutch word Excijs, which was altered from Accijs, meaning ‘tax.’



The Latin term Excisus meaning ‘cut out or removed’ influenced the emergence of the word. After all, governments ‘remove’ money from us in the form of taxes.

Verb

The verb to excise, with the meaning ‘cut out,’ emerged in the English language in the 1570s. It came from the Middle French word Exciser.

The Middle French word came from the Latin word Excisus, meaning ‘cut out, cut down, destroy, cut off.’