Excise Duty vs. Sales Tax

What is the difference between excise duty and sales tax?

Governments impose taxes on the citizens in order to raise the revenue it needs. Two of these are excise duty and sales tax and both are compulsory. This is how the government is able to have the funds necessary to function and make sure that the needs of the people are being met. Other types of taxes that a government levies are wealth tax, income tax, toll tax and custom duty. The bulk of the revenue, though, comes from excise duty and sales tax. People are often confused as to what these taxes are. The purpose of this article is to differentiate between the two so that you can see the difference between them.

About Excise Duty

The excise duty is the tax that a government levies on items that are produced in the country. The manufacturer has to pay this tax when the finished products are shipped to buyers and moved out of the warehouse. It can also be called a manufacturing tax or a production tax. The consumer does not pay the tax because it is the duty of the manufacturer to pay it. Some may confuse excise duty with customs duty but the excise duty is the tax on products manufactured inside the country and customs duty is the tax on products manufactured outside the country.

About Sales Tax

Consumers pay sales tax on the products that they purchase. In some places this tax is included in the price quoted and in others it is added onto the price of the item at the checkout counter. On an invoice it is the last item to be added because it is a total of the sales tax on each individual item that is listed.

Retailers collect the sales tax from consumers and it is their responsibility to submit this money to the government. It is hard for retail outlets to avoid paying this because their sales have to be reported on their income tax forms.

Summary

  1. Excise duty is the tax the government levies on goods that are produced within the country. The manufacturer pays this tax.
  2. Sales tax is paid by the consumers when they purchase goods from a store.