MODERNISING EXCISE TAXES TO

PROMOTE INNOVATION AND

SUSTAIN GOVERNMENT REVENUES

ELIZABETH ALLEN
APRIL 2023

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Note: Images based on Google Visuals Search
 INTRODUCTION
• Excise duties can be revenue efficient and help governments
achieve health, social and environmental objectives.
• Many excise taxes were introduced years ago. With innovations in
technology, product developments and changes in consumer tastes,
there is a need for excise taxation policies and processes to
modernise accordingly.
• The introduction of new excise taxes and the development of
differential taxation according to the “harm” in the product has led
to innovation and development of new products that can satisfy
consumer demands and prompt innovation by industry whilst
helping governments achieve health, social and environmental
objectives.

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 PILLARS OF EXCISE TAXATION
• Clear tax category definitions - to define the products and services to be taxed, and
differentiate between product and service categories
• Excise tax structures for products - specific is recognized as best international
practice rather than ”Ad Valorem” BUT
• Excise tax structure for services should be “Ad Valorem”
• Excise tax point should be when the manufactured product or service is
consumable
• Excise tax rates should be based on the different harm levels of the products
• Excise tax processes should be electronic
• Excise tax administration should be supported by an electronic tax register with
audit and physical spot checks conducted according to compliance risks
• Excise enforcement should be risk and intelligence based with campaigns and
publicity plus penalties designed to encourage compliance and minimize fraud
Source: Using Excise Taxes to Increase Government Revenue Post-COVID-19 (taxnotes.com) 3
 HOW EXCISE TAXES CAN HELP GOVERNMENTS ACHIEVE
HEALTH, SOCIAL AND ENVIRONMENTAL GOALS

• TOBACCO PRODUCTS – Differential excise tax can nudge consumer

behaviour towards less harmful products – Heat-not-burn products
and e-cigarettes
• ALCOHOLIC BEVERAGES – Differential excise taxation can target by
alcoholic strength of the product – UK excise specific tax rates
• SUGAR SWEETENED BEVERAGES -Excise tax can drive industry
transformation to less harmful products – UK Sugar sweetened
beverages
• POLLUTING SUBSTANCES – FUELS, LANDFILL, AVIATION,
AGGREGATES - Differential excise taxation plus ambitious
government target and incentives – Norway Electric Vehicle (EV)

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 TOBACCO PRODUCTS

August 2018: “The level of taxation on smoking-related products

should directly correspond to the health risks that they present, to
encourage less harmful consumption. Applying that logic, e-
cigarettes should remain the least-taxed and conventional cigarettes
the most, with heat-not-burn products falling between the two” (1)

December 2018: “The Government accepts this recommendation,

which reflects current practice. (2)

Sources:
1. https://publications.parliament.uk/pa/cm201719/cmselect/cmsctech/505/505.pdf
2. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/762847/government-response-to-science-
and-technology-committee_s-report-on-e-cig.pdf
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 UK EXCISE DUTY RATES ON SELECT TOBACCO AND
NICOTINE PRODUCTS (1)

Products Duty rate from 6pm 15 March Excise differential

2023 vs. Cigarette MET
Cigarettes • £294.72 per 1,000 cigarettes plus -
16.5% of retail price
• Minimum Excise Tax (MET):
£393.45 per 1,000 cigarettes
Heat-not-Burn £302.93 per kg 80%

E-cigarettes Not excisable 100%

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IMPACT OF DIFFERENTIAL EXCISE TAXATION OF
TOBACCO PRODUCTS IN THE UK

Prevalence of combusted and non-combusted products in the UK among

persons aged 18 and older (in %), 2002–2021

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 UK AND EU ALCOHOLIC BEVERAGES - DIFFERENTIAL EXCISE
TAXATION SUPPORTED BY LONG-TERM PLANNING

• Excise tax to be based on the harmful substance (such as per

alcohol content) in the UK and for spirits in the EU. Alcohol Directive
in the EU is under revision (1)
Long Term Planning:
• European Union: “Europe’s Beating Cancer Plan” aims to reduce by
at least 10% the alcohol use per capita by 2025
• United Kingdom: Revision of the current legislation launched, and
the Government will increase the duty rates under the revised duty
structure for alcohol products being introduced from 1 August 2023
in line with the Retail Price Index (RPI). Alcohol duty rates have
remained frozen since Autumn Budget 2020.

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 EU AND UK ALCOHOL STRATEGY

“Reduce harmful alcohol consumption in line with

the targets of the UN Sustainable Development
Goals (relative reduction of at least 10% in the
harmful use of alcohol by 2025) and reduce young
people’s exposure to alcohol marketing.” (2)

“Impact on individuals, households and families:

[…]
Individuals who drink stronger alcoholic products
may pay more through the revised duty structure.
(3)

Sources:
1. https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/promoting-our-european-way-life/european-health-union/cancer-plan-
europe_en
2. https://www.gov.uk/government/publications/changes-to-alcohol-duty-rates/alcohol-duty-rate-changes
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 SUGAR SWEETENED BEVERAGES
Differential excise tax on sugar sweetened beverages (“sugar tax”)
implemented in the UK, April 2018:

Rates:
• 24p per litre of drink if it contains 8 grams of sugar per 100
millilitres
• 18p per litre of drink if it contains between 5 – 8 grams of sugar
per 100 millilitres
• Not subject to excise if sugar content is less than 5 grams per 100
millilitres
Aim: Tackle childhood obesity, to encourage companies to
reformulate their soft drinks.

https://www.gov.uk/government/news/soft-drinks-industry-levy-comes-into-effect
 IMPACT OF THE UK SOFT DRINKS LEVY

Proportion of sales of drinks subject to the Soft Drinks

Industry Levy by total sugar content per 100ml in
baseline (2015) and year 4 (2020

Source: report 2015 to 2020 (publishing.service.gov.uk)

Soft Drinks Industry Levy comes into effect - GOV.UK (www.gov.uk)
Sugar reduction and reformulation progress 11
 TACKLING POLLUTTION
VEHICLES IN NORWAY
• Electric Vehicles (EVs) benefit from tax and other incentives for initial purchases and
subsequently compared to vehicles with internal combustion engines.
• 2016, Norwegian Government announced plans for 100% of new vehicle sales to be zero
emissions models (electric or hydrogen) by 2025. (1)
• Emissions from vehicles decreased by 4% in 2020 vs 2019. Norway published that the
transport sector accounts for 30% of Norway’s greenhouse gas emissions, 17% of road
traffic. (2)
Taxes and Prices comparison in Norway: Electric Vehicle vs. Vehicle with Internal Combustion Engine
(ICEV) (3):

Sources:
1. https://www.climateaction.org/news/norwa
y_hits_electric_car_milestone
2. https://cleantechnica.com/2021/11/06/evs-
help-lower-total-emissions-in-norway-by-3-
5-in-2020/
3. https://elbil.no/volkswagen-golf-in-norway-
from-diesel-to-electric/

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 THE NORWEGIAN EV INCENTIVES
• No purchase/import tax on EVs (1990-2022). From 2023 some purchase tax based on the cars’ weight on all new EVs.

• Exemption from 25% VAT on purchase (2001-2022). From 2023, Norway will implement a 25 percent VAT on the purchase price from
500 000 Norwegian Kroner and over

• No annual road tax (1996-2021). Reduced tax from 2021. Full tax from 2022.

• No charges on toll roads (1997- 2017).

• No charges on ferries (2009- 2017).

• Maximum 50% of the total amount on ferry fares for electric vehicles (2018)

• Maximum 50% of the total amount on toll roads (2018-2022). From 2023 70%

• Free municipal parking (1999- 2017)

• Access to bus lanes (2005-). New rules allow local authorities to limit the access to only include EVs that carry one or more passengers
(2016-)

• 25% reduced company car tax (2000-2008). 50 % reduced company car tax (2009-2017). Company car tax reduction reduced to 40%
(2018-2021) and 20 percent from 2022.

• Exemption from 25% VAT on leasing (2015-)

• The Norwegian Parliament decided on a national goal that all new cars sold by 2025 should be zero-emission (electric or hydrogen)
(2017).

• «Charging right» for people living in apartment buildings was established (2017-)

• Public procurement:​ From 2022 cars needs to be ZEV​. From 2025 the same applies to city buses

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Source: https://elbil.no/english/norwegian-ev-policy/
 EXCISE ADMINISTRATION
PURPOSE: Compliance - Individuals and organisations comply with all
their legal obligations
• COMPLIANCE MANAGEMENT FRAMEWORK – Processes –
taxpayer identification, licensing, approvals, bonds/securities,
returns and payments, Supply Chain Controls required, Audit,
Penalties, Complaints, Appeals, Taxpayer services,
• RISK AND RESOURCE MANAGEMENT – Risk assessments of all
taxpayers, allocation of resources according to risk and political
priorities.
• TECHNOLOGY – electronic processes e.g. ,registration, rendering
returns and payments, taxpayer records, taxpayer enquiries and
complaints, linkage
• DEBT MANAGEMENT and INSOLVENCY 14
 EXCISE ENFORCEMENT
Customs, Tax, Police and Local Authorities should work together to
ensure that smugglers, counterfeiters and those who do not declare
or who under declare domestic production are investigated and
subject to civil/criminal action
• Customs should maintain specialist intelligence and investigation
resources including using mobile task forces, scanners and
sniffer dogs
• Conduct coordinated cross authority campaigns e.g.,
wholesalers, retailers, distributors and unannounced spot checks
with appropriate penalties and subsequent local media publicity
for offenders
• Ensure appropriate training and awareness for customs and
other authorities’ staff about excisable goods
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 CONCLUSIONS
• Products, services and consumer tastes evolve so excise tax systems need to be modernized to
promote innovation.
• Excise taxes play an important part in sustaining tax revenues and encouraging industries to
produce less harmful products (e.g., tobacco/nicotine products, hybrid or fully electric vehicles.
• For consumers, differential excise tax policy can nudge consumers to make better choices (e. g.,
Electric Vehicles vs. fuel consuming Vehicles)
• For manufacturers, different tax rates for products and services with different externalities can
incentivise investment, drive research and innovation and nudge manufacturing decisions towards
less harmful products (e.g., differential excise tax on sugar sweetened drinks or alcoholic beverages
in the UK).
• To sustain government tax revenues, there are opportunities to increase tax levels on the most
harmful products and services, while providing lower or no tax on less harmful products and
services.
• There are opportunities to introduce new taxes on products/services deemed harmful to health or
to the environment e.g. food products containing high levels of sugar, air transport, landfill,
aggregates, halogen and incandescent lightbulbs, plastic bags.

UNLESS THERE IS EFFECTIVE EXCISE ADMINISTRATION AND ENFORCEMENT WHATEVER NEW TAXES
OR TAX CHANGES YOU ADOPT MAY NOT RESULT IN SUSTAINABLE REVENUES. 16
 MODERNISING EXCISE TAXES TO PROMOTE
INNOVATION AND SUSTAIN GOVERNMENT REVENUES

gambling
gambling

THANK YOU

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Note: Images based on Google Visuals Search