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Excise Duty


Excise Duty is a tax imposed on goods produced inland. The term 'excise tax' in lieu of 'excise duty' is more comprehensive and covers taxes levied on the manufacture, sale or purchase of any commodity or service. The excise tax is applicable both for domestic and imported goods but the excise duty is levied on domestic products only. Excise duty is a tool of government revenue collection. The government can use it with the motive of 'income distribution' or for implementing the benefit principle of taxation i.e., collection of funds through excise on particular products (like tobacco) and using the funds for assisting people affected by consumption of that product. Excise duty is also imposed to discourage the consumption of certain so-called 'undesirable' commodities (e.g., liquor and tobacco) or to control or ration the consumption of certain commodities in times of external scarcity (such as in wartime) or inflationary pressure. The basis of tax computation may be ad valorem (as in a value added tax) or specific or in rem (i.e, on the physical units).

Of the three main indirect taxes - customs duty, excise and sales tax - customs duty was introduced first in Bengal as early as in the period of ancient India (before 300 BC). The subcontinent witnessed a similar tax known as chungi during the Mughal period and sales tax was introduced just in 1938. The Muslim rulers in India introduced the salt tax, considered similar to an excise duty, and although Emperor akbar had issued an order to abolish salt tax, the order was not properly carried out in remote provinces. Muslim invaders brought opium to India from Persia and the tax on opium, similar to excise duty, was a major source of income of the Muslim rulers.

Excise duty is imposed in Bangladesh under the Excise and Salt Act 1944 (Act I of 1944) enacted on 24 February 1944. This law was introduced to levy and collect excise duties on salt and on goods manufactured or produced in the sovereign territory of the country. Before introducing Value Added Tax (VAT) in July 1991, the excise constituted the second largest source of revenue for the government (about 22% of total revenue). But VAT had reduced the tax-coverage of excise duty to a minimum. In 1991-92, the tax-net of excise duty was reduced to only 25 items (22 items of goods and 3 items of services) from the 99 items (90 items of goods and 9 items of services) subject to excise duty until the end of the previous fiscal year. The change was caused by shifting 74.7 percent of coverage of excise duty to that of VAT. The share of excise duty in total tax in 1990-91 was 26.53%, which fell to 17.8% in 1991-92, 3.68% in 1992-93, 1.4% in 2000-2001, 0.43% in 2007-08 and 0.41% in 2009-10.

All kinds of produced alcohol are subject to narcotics duty at the rates specified in the Second Schedule of the Narcotics Control Act 1990, and not subject to excise duty or VAT. The excisable goods and services kept outside the VAT-net in 1991-92 include tobacco, natural gas and petroleum products, newsprint, gold or silver and products thereof, salt, bank cheques and ordinary bricks. The goods and services subject to excise duty are listed in the First Schedule of the Excise and Salt Act 1944 and their list includes bidi, cloth and cloth goods, and bank services. The first part of the First Schedule was cancelled in 2004 so there was no excise duty on conventional commodities from 2004-05. However according to the second part of the First Schedule, excise duty was imposed just on two services- firstly, individuals savings account in Banks and secondly, domestic air tickets for every passengers except foreign diplomats. Excise duty is collected by the Customs, Excise and VAT wing of the national board of revenue. [Swapan Kumar Bala]