The Economics of Excise Taxation
Abstract
This paper reviews the economics of taxation. It falls into three parts. The first part examines the rationale of excise taxation by reference to the non-revenue objectives that are pursued through the imposition of the various duties. The second part discusses the instruments that can be applied, i.e. duties, regulations and permits. The third part reviews some issues - discrimination, coordination and earmarking - that often arise in connection with excise taxation.
... However, they have gained significant importance among economic policymakers in recent years. This is due to the substantially increasing awareness of the negative health and environmental impacts resulting from the consumption of certain products in recent years (Cnossen, 2010). ...
Differentiated taxation" effectively enhances general welfare, in the terms of both people's quality of life and net national income. The impacts of differentiated "sin taxes" on tobacco, alcoholic beverages, sugar, soft drinks, and fast food are of great interest, particularly in terms of improving both human well-being and government revenues. On this basis, an existing model with factors determining general welfare could be appropriately evolved to include "differentiated taxation" as a key factor. From this perspective, it is suggested that differentiating consumption taxes based on the negative externalities of different types of tobacco products is more beneficial than applying a uniform consumption tax on all types of tobacco products. This Current Issues Bulletin examines excise duties, with a special focus on the differentiation of "sin taxes" as a tool for enhancing general welfare.
... Παρόλο που οι ΕΦΚ αποτελούν ένα καλά εδραιωμένο εργαλείο φορολογικής πολιτικής με μακροχρόνια εφαρμογή (Atkinson and Stiglitz, 1976), δεν είναι ευρέως αναγνωρίσιμοι από το ευρύ κοινό (ή συχνά συνδέονται αποκλειστικά με τη φορολογία καυσίμων), έχουν αποκτήσει ιδιαίτερη σημασία για τους φορείς χάραξης οικονομικής πολιτικής τα τελευταία χρόνια. Αυτό οφείλεται στη σημαντικά αυξανόμενη ευαισθητοποίηση σχετικά με τις αρνητικές επιπτώσεις στην υγεία και το περιβάλλον από την κατανάλωση συγκεκριμένων προϊόντων τα τελευταία χρόνια (Cnossen, 2010). ...
(ΑΝΑΛΥΣΕΙΣ ΕΠΙΚΑΙΡΟΤΗΤΑΣ) Η «διαφοροποιημένη» φορολογία βελτιώνει αποτελεσματικά την κοινωνική ευημερία τόσο ως προς την ποιότητα ζωής των ανθρώπων όσο και ως προς το καθαρό εθνικό εισόδημα. Iδιαίτερο ενδιαφέρον
παρουσιάζουν οι επιπτώσεις των (διαφοροποιημένων) «φόρων αμαρτίας» στον καπνό, τα αλκοολούχα ποτά, τη ζάχαρη, τα αναψυκτικά και το πρόχειρο/γρήγορο φαγητό, ως προς τον ρόλο τους στη βελτίωση τόσο της ανθρώπινης ευημερίας όσο και των κρατικών εσόδων. Σε αυτή τη βάση, ένα υπάρχον εργαλείο με παράγοντες προσδιορισμού της κοινωνικής ευημερίας θα μπορούσε να εξελιχθεί κατάλληλα για να συμπεριλάβει σε αυτούς και τη «διαφοροποιημένη φορολογία». H διαφοροποίηση των φόρων κατανάλωσης με βάση τις αρνητικές εξωτερικότητες των διαφόρων τύπων προϊόντων (για παράδειγμα καπνού) φαίνεται να είναι πιο επωφελής από την εφαρμογή ενός ενιαίου φόρου κατανάλωσης σε όλους τους τύπους προϊόντων καπνού. Στην τρέχουσα Ανάλυση Επικαιρότητας εξετάζονται οι ειδικοί φόροι κατανάλωσης, με ιδιαίτερη έμφαση στη διαφοροποίηση των «φόρων αμαρτίας» ως ένα εργαλείο βελτίωσης της κοινωνικής ευημερίας.
... The level of harmonization of minimum rates enables the diversity of rates towards higher than minimum values and not limited divergence indicators related to consumption taxes. Cnossen (2005) for example stated that in the tobacco excise tax in the European Union, which includes a combination of specific rates to ad valorem rate, the application of combined rate indirectly discriminate in favor of European producers in the market who that tax adjust their production, compared to others who They did not do so. ...
This article aims to determine the convergence of the 27 EU Member States in the field of excise duties in the period 2000 – 2015. However, more recent complete data for all states are not available yet. The development trend towards convergence or divergence of monitored indicators is detected by indicators that represent excise taxes in the tax systems of the Member States of the European Union from the Eurostat database. Excise taxes are collected as whole. The article should answer two questions that are derived from generally preferred trends in the EU in a given period, ie. the trend growth of the tax burden to consumption and a trend approximation (harmonization) taxing consumption due to the functioning of internal market in the EU. The question is whether Member states and candidate countries are similar to each other in the field of excise duties and any similarity to the changes between the years 2000 and 2015. The second question is whether the differences are caused by tax policy states, ie. Changes in rates or absolute consumption. The indicators of individual member states are subjected to cluster analysis, and subsequently evaluated by means of selected factors that relate to tax policy and national economic aggregates, especially the consumption of taxed products. Results show growing differences (divergence) between most countries of the original EU‑15 group and the group of countries which joined the European Union in 2004 and 2007.
... It has been suggested that countries complement VAT revenues by mobilizing excise taxes in the first generation (Chambas, 2005b). Indeed, excise duties concern specific final consumption goods (alcohol, tobacco, cigarettes, petroleum, etc.) likely to generate substantial tax revenues because of the importance of the consumption of the goods concerned, but also lower elasticity of consumption of excisable goods to price increases (Cnossen, 2005;Cnossen, 2011a). The reforms undertaken in recent years in relation to excise duties have been the simplification of the excise tax system (rationalization of the number of excises and the number of items), the delimitation of minimum and maximum rates for excisable goods, and the generalization of ad-valorem and composite rates. ...
During recent years, most developing countries have been faced with the need to reconcile twoimperatives: on the one hand, a strong social demand that requires additional public resources,and on the other, tariff dismantling following trade opening policies, which deprives them fromtheir major budgetary revenues. Hence, it urges for these countries to ensure a transition in thestructure of their public revenues, i.e. to transfer the fiscal pressure from international tradeto domestic taxation. This thesis focuses on this issue and aims to study the conditions forsucceeding such transition through four empirical essays.The first essay concerns the role of value-added tax (VAT) and excise duties in a first waveof transition. Since VAT is a neutral tax with a very broad tax base, it has been suggestedto countries as a major tool for successfully transferring public resources from border taxes todomestic taxation, and to complement the VAT effect with excise duties taxation. Our empiricalinvestigations support this theoretical assertion and show that the pair VAT-excise does play ameaningful role as a substitute for border taxes, which have almost decreased following tariffsdismantling in developing countries. Nevertheless, the supporting role of VAT and excise dutiesis limited above a certain threshold of decline in border taxes, which also reflects the fact thatthe potential for tax revenue mobilization by VAT and excises is limited in these countries anddeserves close attention.In the second essay, we analyze the second generation tax transition scheme based on directtaxes (incomes and property taxes). We find that direct taxes are not operational for tax transitionin developing countries. However, we find that financial development is an undeniablemediator for a successful second wave tax transition reform based on direct taxes. Financialdevelopment would allow to recoup informations on taxpayers’ incomes and produce paper trailsfor tax administrations. This would help enforce incomes taxes and secure additional direct taxrevenues in this transition process.In the third essay, we examine the effect of the implementation of a tax transition reform on theefficiency of revenue collection by conducting a case study for the West African Economic andMonetary Union (WAEMU). Our results support the affirmative, in the sense that the reform increasesoverall revenue collection efficiency in the WAEMU zone. This efficiency would also leadto an improvement in tax-oriented business climate in the zone, following the implementationof the reform.10Finally, we conclude this thesis with a last essay that examines the distributional and povertyimpacts of VAT-based tax transition reform for the case of Togo. Although the results show aregressive impact of the reform on households’ income, a redistribution through spending wouldhave the merit of mitigating the social incidence of the reform on households’income at thiscountry level.
... Energy taxes are an example of excise taxes, they discourage the consumption of electricity based on the negative environmental impacts which arise from power generation from fossil fuels (Cnossen, 2011;Parry et al., 2012;Organisation for Economic Co-operation and Development, 2018). Excise taxation is indeed the guiding principle behind the existing EU Energy Taxation Directive, which stipulates that EU Member States are required to levy a minimum energy tax for electricity consumption (0.5 €/MWh for businesses and 1 €/MWh for non-business users) (European Parliament and the Council of the European Union, 2003). ...
The European Union considers demand response to be an integral part of its future energy vision, in particular as a supporting mechanism for renewable resource integration. To achieve high demand response participation, the European Union recognises the need for adequate financial incentives for all consumers, especially for residential and service sector consumers. However, the European Energy Tax Directive, which regulates energy taxation in the European Union, is currently not in alignment with this vision, as it does not provide any financial incentives for demand response participation. This paper explores the potential of energy taxes to provide such incentives. First, through an analysis of the current energy taxation and demand response literature. Second, by quantifying the difference in financial incentives between two tax designs (per-unit and ad valorem taxes) in a simulation case study of consumers heat pumps in the Netherlands. Results show that financial incentives are 3.5 times higher for the ad valorem tax than for the per-unit tax. The paper concludes with recommendations for policy makers for the design of energy taxes that provide residential and service sector consumers with adequate financial incentives for demand response participation.
Identification of elements of benchmark tax system (indirect taxes benchmark) and tax expenditures is a necessary prerequisite for the implementation of the concept of the tax expenditures in the budget process. Their identification is complicated by the lack of a generally accepted conceptual model of the tax benchmark and, consequently, – generally accepted criteria for qualifying a particular provision of tax legislation as an element of such benchmark or tax expenditures. Given the above, the application of the concept of tax expenditures to the analysis of indirect taxes is determined as the purpose of the article. To achieve this goal, the most controversial aspects of the concept of tax expenditures are considered: the problems of their identification and measurement, as well as the contradictory consequences of its implementation. Peculiarities of application of the concept to the study of tax reliefs for indirect taxes – universal and specific excises are analyzed. The main elements of the benchmark for the VAT and deviations from it are identified, on the identification of which there are both consensus and disagreement among scientists and practitioners from different countries. The existing approaches to the qualification of reduced VAT rates and exemptions from payment in the public interest in the EU member states and other countries are analyzed, arguments in favor of their identification are proposed, taking into account the harmonization of this tax. The existing conceptual approaches to the identification of elements of the benchmark and tax expenditures of the least studied in this context specific excises and the peculiarities of their application in different countries are outlined. The definition of the main elements of the benchmark and tax expenditures of harmonized excise taxes is argued. Based on the analysis of the reports of the State Tax Service of Ukraine on tax reliefs, that are losses of budget revenues, and other tax reliefs, the main elements of the benchmark and tax expenditures for VAT and excise tax in Ukraine are highlighted. Regarding the latter, such elements are defined for all excisable goods, as well as for some of their groups – alcoholic beverages, tobacco products and energy products. It is established that in Ukraine the composition of the elements of the benchmark and tax expenditures of excise tax on alcoholic beverages and tobacco products can be justified according to the directions of their use, which create or do not create negative externalities, while for excise tax on energy products the theory of optimal taxation should be also taken into account . Common problems in the distribution of VAT and excise tax reliefs between the report on tax reliefs, that are losses of budget revenues, and the report on other tax reliefs have been identified. It is established that such problems are caused by the uncertainty of the Ukrainian methodological basis for identifying elements of the benchmark tax system and tax expenditures by providing information on budget losses from the use of tax reliefs without publishing the methodology of their measurement and definition in normative documents of the specified categories (basic notions of the concept of tax expenditures).
Two types of indirect taxes prevail, first, on selected commodities called selective excises on ‘demerit’ goods like alcoholic beverages and tobacco products, on non-renewable resources like petroleum products, and luxuries like furs and yachts. Collected at the factory gate, they are called production taxes. Excises are narrowly based, and their rates are higher than for widely based consumption taxes including retail sales tax (RST), value-added tax (VAT), and goods and services tax (GST). The United States, one among few, uses RST at the state level. Collected exclusively at the retail level, RST is prone to evasion. The GST or VAT collects tax at every stage of production and distribution including retail while giving input tax credit for taxes paid in earlier stages. This eradicates ‘tax on tax’ or cascading. Thus, if the retail stage is missed, tax is nevertheless collected at earlier stages. Some developing countries have VAT on the supply of goods though not on services. However, VAT or GST should include goods and services in the base. Only then cascading is eliminated comprehensively from the supply chain, though some cascading remains in most structures due to exemptions. Exemptions also erode the base. Production and consumption taxes are studied in this chapter.
In the last years, prices of alcoholic beverages have risen dramatically in Turkey due to tax hikes. The total number of mass alcohol-poisoning incidents and number of deaths originating from drug use have also increased in the same period. This situation shows that store-bought alcohol becomes unaffordable for many, and consumers start to seek for alternatives, as economic theory suggests. Taxes on alcohol are an important financial source for the governments, and the authorities justify so-called sin taxes by the need to reduce consumption of alcohol. However, this study indicates that excessive taxes on alcohol may do more harm than good to economy and society. High taxes may not break an alcohol habit, but rather replace it with a more deleterious addiction or push
drinkers to unrecorded alcohol.
The scientific monograph Dane a ich právna úprava v Slovenskej republike v kontexte daňovej politiky EÚ (Taxes and their regulation in Slovak republic in the context of tax policy of the EU) is primary written for academic audience. Authors hereof focus on regulation of taxation in Slovakia and its development analysed within Slovakian historical and geopolitical background, as well as specific areas of tax law influenced by tax policy of European Union. Furthermore, level of implementation of EU regulation into Slovak national legal order and current tendencies and future development of tax law in Slovakia and EU are analysed. This publication presents critical analysis of tax legislation in Slovakia and EU and, aiming at improvement of the current state of art, de lege ferrenda proposals regarding both the national and EU level of legislation are presented, as well.
In connection with gradual development of taxation, the need for creation of clear and exact notions in the field of tax law has occurred. In this respect, we may designate as fundamental the acknowledgement of distinctive features and precise differences in legal constructions of various duties, taxes, customs and others monetary public payments, since, in the past, such clear differences between these duties were absent and they were only recognised and differentiated through their purpose as instruments for accumulating income for public revenues. Currently, these notions are strictly defined by law which, however, does not automatically mean that their legal definition is always sufficient for the needs of tax policy or application.
On the basis of theoretical, historical, scientific, and special knowledge of primary and secondary sources of exploration of and scientific research on taxation, authors arrived at the conclusion that this researched issue need to be analysed in a complex way considering mutual interaction of different factors (economical, legal, political, social, cultural, historic and others) which, in future, may lead to metamorphosis of viewpoints on tax policy and strengthening of its synergic effects. Current tax policies developed on national level consist of complex processes, whereas national tax systems of each country must be confronted with tax systems of the others around the world due to increase of internationalization and globalization.
The history of modern tax system in Slovakia emerged together with the founding of independent Slovak republic in 1993. During this more than 20 years period, Slovakian tax law has undergo rapid changes and concluding that for almost one half of this period it has been living under the influence of the EU law, we may summarise that this was significant factor that shaped Slovakian tax law in very specific ways (this was possible because of international obligation that arise for Slovakia from article 7 par. 2. of the Constitution of Slovak Republic, which states that EU law has precedence over the laws of Slovak Republic). Notwithstanding the fact that EU law has influenced nearly all branches of national law, taxation may still be perceived as the key area of interest of EU policies.
Conclusions of each part of the monograph unambiguously confirm the main hypothesis of the book that, de lege lata, there is no area of tax law of Slovak Republic, perhaps except for the local taxation, that has been excluded from the influence of EU tax policy. Albeit, there are significant difference regarding particular taxes and the level in which they have been affected by EU law. Hence, substantial differences in the impact of EU law on particular taxes of Slovakian tax law can be identified.
Area of indirect taxation has undergo the complex harmonization, which means that each of the Member States has been obliged to adopt common system of value added tax and the general arrangements for excise duties into its national law. Although this harmonization might not be seen as absolute, Member States still have the liberty of taking decisions on certain aspects of indirect taxation, e. g. change of the tax rates or implementation of tax exemptions. On the other hand, the area of direct taxation (especially income taxes) and tax administration are affected by EU legislation only in a very restricted way and the main regulatory power remains within the Member States. These are not whiling to come to an agreement on the crucial issues regarding direct taxation, hence, current situation might be seen as a kind of stalemate between EU, on one side, and Member States, on the other. Harmonization of direct taxes (especially corporation income tax) is perceived as controversial, to certain extent, and carries a strong political message, as is evident in case of CCCTB concept. Arrival at an agreement on these sensitive political issues, that could as well have the impact on national economics of the Member States of EU, is very difficult if not, at least currently, impossible. Letting alone this conclusion, current social, political and economic factors together with the diminishing economic crisis and urgent problem of tax evasion and tax frauds (which are often base on intracomunitary transactions, movement of goods and capital among EU Member States) are asking for more extensive cooperation among Member States even in the areas that have not traditionally been subject to EU tax harmonization, which as we assume, is the fact that is acknowledged by both the EU and the Member States and forces them into taking action in this respect.
Authors participating in this academic publication express their hope that this monograph covers all relevant and substantial areas of taxation in Slovakia which were influenced by tax policy and tax law-making of EU in recent years. Albeit, this part of law has been in constant development. Each new tax bill or an adopted regulation is immediately confronted with social and economic reality and must also face the alternating political will. Therefore, this particular object of legal science still remains open to fresh approaches and new scientific enquiries.
Monograph´s structure comprises following topics/chapters:
I. Historical development of regulation of taxes:
Development of tax legislation in the area of Slovakia since the late 19th century (direct & indirect taxation);
Development of tax harmonisation within the EU (income taxes, value added tax, excise duties);
II. Current legal regulation of taxes:
Direct taxes (income taxes, special levy on selected financial institutions, motor vehicles tax, local taxes);
Indirect taxes (value added tax, excise duties);
Tax administration;
III. Elaborated conceptual reforms and planned fundamental changes in taxation:
Level of Slovak Republic (market value-based taxation of real properties, reform of tax and customs administration);
Level of the European Union (CCCTB concept, financial transactions tax, new targets of excise duties);
IV. Opinions, discussions, and perspectives;
V. Conclusions.
p> Accumulation of funds to cover government spending is the primary purpose of taxation. According to multiple authors, excise duties are classified as taxes with the highest revenue-raising potential. In the OECD member states, e xcise duties constitute a considerable source of state revenue. They account on average for 7.6% of total taxation. The European Union member states apply a harmonized structure for excise duties on selected products. They include, above all, alcoholic beverages and tobacco products. The average share of alcohol and tobacco taxation in GDP and total taxation for EU-28 in 2014 equaled, respectively, 0.8% and 2.2%. Although taxes on alcohol and tobacco are in no small extent harmonized, their design may sill vary between member states and strongly affect their collection efficiency. The primary purpose of this article is to compare excise duties imposed on alcohol and tobacco in Germany and Poland. The article is divided into three parts. The first addresses theoretical aspects concerning excise taxation. The second reviews the design of alcohol and tobacco excise duties in Germany and Poland. The third evaluates the revenue-raising potential of these duties in both countries. </p
This chapter reviews a variety of issues related to the taxation of cigarettes and other tobacco products. The empirical evidence showing that higher cigarette taxes result in higher cigarette prices is reviewed. This is followed by a discussion of the econometric literature examining the impact of prices and taxes on the demands for tobacco prod- ucts. The small but growing body of research for low-income and middle-income coun- tries clearly shows that higher prices would lead to significant reductions in tobacco use. Similarly, numerous studies from high-income countries reach the same conclu- sion. The estimated price-elasticities for low-income and middle-income countries are about double those for high-income countries, where estimates center on -0.4. Because of the addictive nature of tobacco use, demand for tobacco products is more elastic in the long-run. In addition, estimates from high-income countries indicate that youth and young adults, less educated persons, and those with lower incomes will be relatively more responsive to price changes. This review is followed by a discussion of the various motives for tobacco taxation, including the use of these taxes to generate revenues and to improve economic efficiency and public health. Finally, several other issues in tobacco taxation, including the earmarking of tobacco tax revenues and barriers to tobacco taxation, are discussed.
Excise taxes on smoking, drinking, gambling, polluting, and driving are always topical and controversial. Not only are these taxes convenient sources of government revenue, they can also be designed to reflect the external costs that consumers or producers of excisable products impose on other people. Global warming, acid rain, traffic congestion, and the economic costs of tobacco and alcohol consumption are problems that can be corrected through selective taxes and other regulatory instruments. Addressing these and other issues, this book by internationally recognized experts analyses the art of excise taxation, providing a systematic, insightful, and often provocative treatment of a major fiscal instrument that policy-makers often neglect, and that gets little attention in the professional literature. This comprehensive guide to the debate on excise tax policy will be invaluable to government officials, policy-makers, academics and students of taxation, and those working in relevant industries.
Designing an efficient set of road user taxes and charges involves charging for scarce road space, setting corrective taxes for environmental externalities, and possibly employing additional taxes to improve the overall efficiency and equity of the tax system. As illustrated with data from the UK, congestion costs comprise the largest part of the efficient road user charge, with road damage costs and externalities a relatively small part. The best approach to internalising congestion costs is a cordon toll, although its efficient design turns out to be very complex. Road fuel taxes should probably be set at a level that accounts for the average long-run marginal cost of inter-urban roads for typical cars, with the vehicle excise duty set to adjust total payments by type of vehicle. Furthermore, the external cost of emissions of greenhouse gases, nitrogen oxides, and particulates can be reduced through tailpipe emission standards as well as met by differentially higher excises on, say, leaded than on unleaded petrol. An ad valorem tax on the component of car insurance that covers accident costs would internalise accident externalities. The study calculates the pure road charge and green tax elements in the UK at 0.60 euros/litre for petrol and 0.67 euros for diesel. If this applied generally across the EU, the Netherlands and Germany would be charging petrol at about the right rate and only the UK would be overcharging it. All countries except the UK are probably undercharging diesel. Overall, a strong argument can be made for revenueneutral adjustments in total revenue from road use to improve efficiency by shifting over to better-targeted congestion taxes, such as cordon tolls and road pricing.
Editorial Note on three papers on excise taxation in the EU which grew out of a Symposium on Taxation and Regulation of Alcohol, Tobacco, and Gambling organized under the auspices of the European Commission, the CPB Netherlands Bureau for Economic Policy Analysis, and Maastricht University in September 2007 and which were accepted for publication after the regular reviewing process.