Excise Tax – What It Is and Its Importance
The importance of excise taxes cannot be overstated in any economy as they form part of the government revenue that also affects the businesses and individual’s ability to consume. It does not matter if you are filling up your tank with gas, buying a beer or a pack of cigarettes, excise taxes are included in the actual amount spent. However, in terms accessible to the layman, what is excise tax and why is it necessary? For now, however, expect us to clarify the meaning of excise taxes, as well as their mechanism of action and significance from the point of view of the economy and the society as a whole.
Definition
Excise tax is a category of indirect tax which is levied against specific goods and services. While general sales taxes encompass a wide scope of taxation on a great number of items, excise taxes are specific on certain items which usually include but are not limited to :
Fuel
Tobacco products
Alcohol
Firearm and/or weapons
Flight (E.g. excise tax on airline tickets) including other types
Certain taxes may apply during the course of manufacturing, selling or utilizing the particular product. For example, manufacturers are typically responsible for paying excise taxes on certain items manufactured while consumers pay sale taxes indirectly when they acquire the product at retail.
How Does an Excise Tax Differ from a Sales Tax?
Despite being indirect taxes, both excise tax and sales tax often pulled in the most volume. However, there are distinctions to be made.
Sales Tax: This is a common taxation that is levied when purchasing a range of goods and services towards the consumer at the market fair level.
Excise Tax: Usually, a particular excise tax is against a certain type or class of goods, and is also included in the price tag hence less apparent to the masses.
Delving further into these direct and indirect forms, the excise taxes have a tendency of being incorporated with respect to the items that a government or country would like to control the use of or items that are greatly in demand such as diesel fuels, alcoholic beverages and tobacco.
The Relevance of Excise Tax
It can be stated that Excise taxes, broadly speaking, have 2… er, sure main goals purposes in an economy.
Revenue Generation
Revenue is another important motive of an excise tax. In this instance, an excise tax is likely a tax considered as a consumption tax which funds some government’s programs of some type or another. For example, a transportation excise tax on gasoline is used to finance infrastructure like roads and bridges.
Regulation of Harmful Goods
Regulating effects has to be surrounding the consumers’ consumption with the beverage. Unable to avoid it, excise taxes are usually attached into the taxation process of such goods as tobacco and alcohol due to their societal or health disorders. So, the government can increase the price of these products and limit their consumption as well.
Social Polices Strategies and Environmental Degradation
Certain excise duties which are imposed on fuel or carbon emissions are meant for environmental remediation purposes. It is effective using excise duties to control the undesirable products where people will tend to reduce their fuel ingestion or even move to less pollutant sources of energy.
Who Needs to File and Pay Excise Tax?
Excise taxes are paid most times by the manufacturers, producers or sellers of the taxable items. However, most of the time, the burden is shifted to consumers in the form of increased prices. Businesses dealing on excisable products, such as fuel distributors, wines and spirits manufacturers and tobacco manufacturers are given excise tax returns that are filled and given to the IRS. In the United States, businesses use Form 720 in the reporting of and paying the federal excise taxes.
Key Industries Affected by Excise Taxes
There are very many different industries that are affected by excise taxation, and some of these include the following;
Fuel and Energy: Taxes are levied on fuels such as gasoline and diesel in respect of excise duties for purposes of provision of transport and contributing to ‘green’ activities.
Alcohol and Tobacco: Such goods attract excise duties that are at high rates mainly to discourage the use of such products and finance health promotion activities.
Airlines: Excise tax relief on the purchase of airline tickets is used to construct and maintain aviation systems such as coarse control and airports.
Firearms and Ammunition: There is other products if purchased which are currently subjected to federal excise duty or tax and which are known to be useful in the support of other kinds of activities like wildlife conservation.
How Excise Taxes Affect Consumers
Excise taxes are commonly borne by business operations but the burden is somewhat transferred to consumers. For instance, in the case of a gallon of gasoline, the cost per unit normally reflects the federal excise tax and state excise tax on gasoline. This means that the working class who pays taxes also considers it normal for such services to be funded without hesitation.
Excise taxes are also employed to change consumers’ perceptions and acceptance of certain products or services. Peoples’ motivations to keep the habit of smoking could decrease due to newer regulations like higher taxes on tobacco or cigarette products.
Why Excise Tax Is Important
Excise taxes should not only be viewed by the lens of which taxes the government expects from its citizens. Such taxes are utilized for more benevolent and far-reaching ends that enhance regulation of the society and efficiency of its economy. Through the imposition of excise taxation on specific goods, governments are able to:
Reshape the market and general consumption patterns by making unhealthy goods more costly.
Pay for necessary development such as roads, skyways, and interfered areas.
Reduce industrial pollution by implementing taxes on firms that engage in emission of harmful wastes.
In the final analysis, excise taxes are indispensable in the development of economic policies, the regulation of the industries, and the financing of public purposes that benefit everyone.
How to Pay Excise Taxes with IRS 720
In case your business sells excise goods you will have to complete the form called IRS Form 720 or IRS 720 which is a Quarterly Federal Excise Tax Return. This form is applied for the excise and on certain services such as air transport, oil products, tobacco and others. Tax Form 720 can be filed electronically for the ease and comfort of filing tax returns regarding the taxes and the activities of the taxpayers. There are also forms and help available from tax filing services to help small and larger businesses complete Form 720.
Excise taxes generate revenue for the government and have important purposes. When its either on the provision of physical facilities or by enhancement of better individual choices, excise taxes have an impact government economy and to the society in many ways. For businesses, it is imperative to comprehend when one’s excise tax liabilities arise and the stages at which returns should be filed in order to avoid penalties. For consumers, these taxes could explain why certain products are priced the way they are and the effect of consumption decisions on other factors.