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Excise is a tax on the rich and so Government’s should not be worried about how high rates are set” Essay Example

  • Category:
    Law
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    Essay
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    Undergraduate
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Excise is a tax for the rich and the government should not be worried about how high rates are set

INTRODUCTION

To investigate whether the claim that Excise is a tax for the rich and hence the government should not worry about how the high rates are set, one would need to scrutinise several issues raised in the assertion. First, it is worth establishing whether Excise is indeed a tax for the rich. Second, and depending on the answer to the first question, one would need to establish if the tax burden, even if it were intended for the rich, is indeed shouldered or carried by the rich. Finally, one would need to consider whether the government has an obligation to ‘worry’ about how Excise rates are set regardless of which side of the economic divide the tax targets. In order to satisfy the three identified areas, this paper will carry an in depth analysis of Excise tax, and will rely on academic, government and non-academic sources in doing so.

The paper argues that though the Excise tax may have targeted rich individuals or entities, those who shoulder its burden are not necessarily drawn from the affluent group in the society. Additionally, the paper notes that besides individuals, the tax affects small and medium enterprises in the same way it does the large businesses. Consequently, the tax is a disadvantage to the small and medium enterprise who may be trying to gain enough footing in order to grow or challenge the already established large businesses. As such, the paper concludes by observing that the government should not pay a blind eye to how Excise rates are set; rather, it should be an active participant in setting the tax rates in order to ensure that all investors are treated fairly and equitably.

IS EXCISE A TAX FOR THE RICH?

Excise tax entrenched in Australia’s constitution under the Excise Tariff Act 1921 and the Excise Act 1901. In the two Acts, Excise is defined as an indirect levy imposed on certain goods produced and manufactured in Australia. Such goods include petroleum and petroleum products, tobacco, cigars, cigarettes, and alcoholic beverages such as spirits and beer. Offering more insight into how Excise works, Webb observes, ‘It is levied as an amount of money per unit of the commodity, for example, cents per kilogram’1. As such, manufacturers have to factor in the cost of Excise when determining their overall cost of production. The consequence of Excise is that it increases the relative cost of producing goods. For this specific reason, the more goods a manufacturer produce, the more Excise tax he or she pays.

A basic argument would propose that a person or entity that has enough capital to venture into the manufacturing industry is rich; however, this is not necessarily true. In fact, the definition of the term ‘rich’ is relative and therefore one cannot label all manufacturers as rich. Some are just individual or a group of businesspersons, intent on exploiting a business opportunity.
WHO PAYS THE EXCISE TAX?

It is also worth noting that although the legal incidence for paying Excise lies with manufacturers, they often shift some of the ‘Excise burden’ to consumers through the economic incidence where goods that would otherwise retail cheaply are sold at a higher price2. Considering that consumers are drawn from different economic classes, it would be ignorant to claim for a fact that, Excise is indeed a tax for the rich.

The case of fuel

The prevailing Excise arrangement on fuel in Australia impose a 38.1 cents on every litre of domestically manufactured diesel, ethanol, bio-diesel, or petrol3. The federal government however neutralises the effect of Excise tax imposed in ethanol and bio-fuels through grants, which principally make them Excise-free. Ideally, government’s grants are intended to encourage more people to adopt the use of alternative fuels, whose negative externalities to the environment are fewer compared to other fuels4. It is however notable that, cars that use alternative oils are only within the reach of well-do-to people. As such, one can argue that neutralising Excise tax on alternative fuels is shielding the very rich people who are supposedly targeted by the tax from paying up.

Putting the effect that the use of fuels has on the environment aside, the fuel Excise is principally levied for purposes of covering for the road use5. As such, the government uses the levied amounts to cover for road wear, environmental costs and other externalities. By neutralising the Excise tax on alternative fuels, the government adopts an inconsistent approach by shielding some people who contribute to the same wear, crashes and environmental costs that other fuel users do. Such an approach by the government counteracts the assertion that Excise is a tax for the rich.

In order to reimburse individuals or business entities that use fuel for non-road purposes, the government offers tax credits to them. Incidentally, heavy vehicles are benefit from the tax credits, which are determined using the Pay-as-you-go system. Because of such an arrangement, the Australian Automobile Association6 notes that heavy vehicle do not pay as much excise tax as private vehicles. Yet, it has been established that heavy vehicles damage the roads significantly when compared to the lighter private vehicles. As a result, the private motorists who bear little responsibility for the damage on roads, ends up paying more to fix the damages caused by the heavy vehicles. From an economic perspective, one can argue that the heavy vehicles are worth more than the lighter private vehicles. As such, one can argue that they are richer, or are owned by wealthier people than the private cars. If the assertion that Excise is a tax for the rich were to be applied in such a scenario, one would expect the heavier vehicles to a higher amount compared to the lighter, private vehicles. As is evident however, this is not the case.

The case of alcoholic beverages

Excise tax on alcoholic beverages is structured in a manner that imposes higher rates on high-alcohol content drinks. As such, the higher the content alcohol, the higher excise tax the drink is likely to attract. Anderson7 however identifies several anomalies in the excise regime in Australia. For starters, the excise inconsistencies applicable on draught beer and packaged beer favour the former over the latter. Secondly, while the excise is low on packaged low-strength beer, there does not seem to be major excise differences charged between mid-strength beers and the high-strength beers.

The unselective imposition of excise on all brewers regardless of their size also counteracts the assertion that the tax is for the rich. For example, the Beer & Brewer Magazine8 argue that the current Excise tax system is stifling the successful operations of small brewers in the country since ‘they are brewing to pay taxes’9. Additionally, the magazine complains that the government is principally ‘punishing’ the small brewers since it does not consider the economies of scale that go into their production processes when compared to the large and already established brewers. Consequently, the small-scale brewers end up paying higher excise rates by volume of production when compared to their large-scale counterparts10. If the concept of richness were to be based on volumes of production, one would justifiably argue that excise duty in this case is harsher on the ‘poor’ or less-wealthy small-scale brewers than it is on the large-scale and comparably wealthier brewers.

DOES THE GOVERNMENT HAVE A CAUSE TO INTERVENE ON HOW EXCISE RATES ARE SET?

Having established that indeed the assertion that excise is a tax for the rich is unfounded, this paper holds the opinion that the government cannot just be a passive bystander as excise rates are set. Aside from being the principal beneficiary from excise taxes, the government also has a responsibility to ensure that tax regimes are fair and equitable. As such, it should ‘worry’ about how the excise rates are set in order to ensure that some players do not receive unmerited favours while other lose out on benefits that they are justified to receive. Additionally, as the benefactor of the civilian population, the government has a role to foster small and medium scale enterprises because, such will not only benefit the business owners, but will also create employment opportunities for the Australians.

In conclusion, it is worth noting that while excise tax is among the key revenue channels for the government, it is only fair that those people charged with setting the roles should ensure that the principles of equity and fairness are considered. As an economy that need to keep on growing in order to hold up against global competitive forces, Australia needs to consider revising its excise tax regime in order to accommodate the rich, and the not-so-rich producers and manufacturer. Even if the excise tax purely targeted the rich, the government would still have an obligation to ‘worry’ and monitor how the rates are set since the rich too would need a tax regime that does not erode their operating capital.

REFERENCES

Australian Automobile Association, ‘AAA Submission In Response To Implementation Of Alternative Fuels Taxation Policy Discussion Paper,’ 2010, viewed 5 September 2011, refer <
http://www.treasury.gov.au/documents/1953/PDF/AAA.pdf>

Beer & Brewer Magazine, “Excise Tax and Craft Brewing’, 2011, viewed 5 September 2011, refer <
http://www.beerandbrewer.com/ForumRetrieve.aspx?ForumID=362&TopicID=297>

Commonwealth of Australia, ‘Fuel Tax Enquiry Report,’ March 2002, viewed 5 September 2011, refer <
http://fueltaxinquiry.treasury.gov.au/content/report/downloads/FTI%20Report_PDF.zip>

Kym Anderson, ‘Excise and import taxes on wine, beer and spirits: an international comparison’, Paper for the pre-AARES Conference Workshop on the World’s Wine Markets by 2030, (2009), 1-49.

Richard Webb, ‘Excise Taxation: Developments since the Mid-1990s,’ (2006) Parliament of Australia, Research brief, 8.

Treasury, ‘Implementation Of Alternative Fuels Taxation Policy’, 2010, viewed 5 September 2011, refer <
http://www.treasury.gov.au/documents/1845/PDF/DP_Alternative_Fuels_Taxation_Policy.pdf>

Warren Neil, ‘Comments on Excise Taxation in Australia’, (2009), 5, viewed 5 September 2011, refer <
http://taxreview.treasury.gov.au/content/html/conference/downloads/Warren_Neil_comments.pdf>

Wittwer, Glyn and Kym Anderson, ‘Impact of the GST and Wine Tax Reform on Australia’s Wine Industry: a CGE Analysis’, (2002), 41.1 Australian Economic Papers, 69-81.

1Richard Webb, ‘Excise Taxation: Developments since the Mid-1990s,’ (2006) Parliament of Australia, Research brief, 8.

2
Warren Neil, ‘Comments on Excise Taxation in Australia’, (2009), 5, viewed 5 September 2011, refer <
http://taxreview.treasury.gov.au/content/html/conference/downloads/Warren_Neil_comments.pdf>

3
Australian Automobile Association, ‘AAA Submission In Response To Implementation Of Alternative Fuels Taxation Policy Discussion Paper,’ 2010, viewed 5 September 2011, refer <
http://www.treasury.gov.au/documents/1953/PDF/AAA.pdf>

4
Treasury, ‘Implementation Of Alternative Fuels Taxation Policy’, 2010, viewed 5 September 2011, refer <
http://www.treasury.gov.au/documents/1845/PDF/DP_Alternative_Fuels_Taxation_Policy.pdf>

5
Commonwealth of Australia, ‘Fuel Tax Enquiry Report,’ March 2002, viewed 5 September 2011, refer <
http://fueltaxinquiry.treasury.gov.au/content/report/downloads/FTI%20Report_PDF.zip>

6
Australian Automobile Association, ‘AAA submission in response to implementation of alternative fuels taxation policy discussion paper’, 2010, viewed 5 September 2011, refer <
http://www.treasury.gov.au/documents/1953/PDF/AAA.pdf>

7 Kym Anderson, ‘Excise and import taxes on wine, beer and spirits: an international comparison’, Paper for the pre-AARES Conference Workshop on the World’s Wine Markets by 2030, (2009), 1-49.

8
Beer & Brewer Magazine, “Excise Tax and Craft Brewing’, 2011, viewed 5 September 2011, refer <
http://www.beerandbrewer.com/ForumRetrieve.aspx?ForumID=362&TopicID=297>

9
Beer & Brewer Magazine (above)

10Wittwer, Glyn and Kym Anderson, ‘ Impact of the GST and Wine Tax Reform On Australia’s Wine Industry: a CGE Analysis’, (2002), 41.1 Australian Economic Papers, 69-81.