Tax Body Stresses Evolving Excise Role

At its recent conference held in April, the US Tax Foundation, which is the nation’s leading independent body on tax policy, presented research on some of the most pressing issues in global taxation, including global minimum tax, carbon tax, and excise tax.

Included in the panel of speakers was Dr Adam Hoffer, Director of Excise Tax Policy at the Tax Foundation.

He described excise taxes as a well- established component of global tax policy. They are used to generate government revenue while providing incentives for market participants to consume and produce less harmful products. With proper design and implementation, excise taxes can improve overall well-being and fund public programmes to improve market outcomes. Poor implementation of excise tax policy, however, can create an environment in which people are worse off than if no policy had been implemented in the first place.

Dr Hoffer stressed the evolving role of excise taxes worldwide. Their nature and design vary widely, and the complexity of designing tax policies is a central concern. Cannabis is an apt example. Jurisdictions have a wide range of tax rates applied to different parts of the cannabis plant and at different stages of production, resulting in a web of complexity.

To guide excise tax design, the Tax Foundation has recently published a comprehensive study titled ‘Global Excise Tax Application and Trends’, which provides an overview of excise structures and latest global trends.

Some key findings of the report are:

• The tax base is shrinking for traditional excise taxes, including tobacco, alcohol, and motor fuels. Smoking rates have plummeted in developed countries and motor fuel usage has decreased as the share of electronic vehicles on the road has increased. These sources of revenue are therefore unstable and work poorly as a source to fund growing expenditure programmes.

• As the tax base shrinks on traditional excise taxes, more and more products will be targeted for excise taxes.

• Newer excise taxes – including those on carbon, cannabis, alternative tobacco products, sugary products, and plastics – have the potential to significantly affect global trade and increase the percentage of tax revenue generated by excise taxes.

• Carbon taxes, in particular, have the potential to exceed the revenues of all the other excise taxes combined. Cannabis markets are young but have the potential for a large tax base if widely decriminalised. Sugar-sweetened- beverage taxes have been rolled out in many areas across the globe, although with little

• to no effect on obesity. However, such taxes may be a gateway tax to a broader policy on added sugars. Plastic taxes, meanwhile, are transitioning from a narrow tax on single- use plastics to a component of extended producer responsibility and a broad tax policy in pursuit of a circular economy.

• For simplicity, excise taxes should ideally be levied early in the value chain because this generally results in a smaller number of taxpayers. Limiting the number of taxpayers reduces the cost of enforcement and lowers the barriers to tax compliance, making the tax relatively efficient.

• Revenues from excise taxes should be spent on targeted social costs related to an excisable product (eg. infrastructure costs associated with driving, and enforcement costs related to alcohol). Excise taxes should not be levied to raise revenue for general funds because the tax bases are typically narrow and unstable.

The full report is available at:

https://taxfoundation.org/global-excise-tax-policy-application-trends/.