Definition & Meaning:

Why is the price of gasoline/petrol, tobacco or alcohol so expensive? Are they so expensive to produce? No, they aren't. The reason is that the government levies (adds a tax) on these products. This tax is called 'excise tax'.

'Excise tax' is a tax that the government (in most countries the central/federal government, but in other the regional/state governments as well) levies/makes companies pay for selling certain types of products. Tobacco, alcohol, gasoline/petrol, airline tickets, trucks are examples of some products where 'excise tax' has to be paid. Companies then add the amount of money they have to pay in 'excise tax' on to the price they sell these products for.

Companies only have to pay 'excise tax' when a product is sold. If the product isn't sold, they don't pay 'excise tax' on it.

Sometimes the 'excise tax' is a fixed amount (e.g. in some US states the 'cigarette tax' (a type of 'excise tax') is over $3 for each packet sold) and other times it is a percentage of the price (e.g. the 'excise tax' in the US on the first sale of any truck is 12%). 'Excise Tax' it is a type of tax which is called an 'indirect tax'.

On most products which have 'excise tax', people also have to pay 'sales tax/VAT' on them as well. The combination can often mean the majority of the price of a product is made up of tax.

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Also Called:

Excise Duty.

Related Vocabulary:

Indirect Tax, Customs Duties.

To learn more about taxes, you can do a free online exercise on tax vocabulary.