Difference Between Excise Duty and Sales Tax

Excise Duty vs Sales Tax

Excise duty and sales tax are two different taxes. Taxes are financial levies imposed by a government upon its citizens that are compulsory and not voluntary. Through these taxes a government is able to function, makes its budget and performs its duties for the welfare of the population. There are many types of taxes such as wealth tax, income tax, sale tax, excise tax, custom duty, and toll tax and so on. Coffers of a government are filled with the help of these taxes paid by the citizens. Excise duty and sales tax are two taxes that are very prominent and form a bulk of the total collection under taxes. People are often confused and cannot understand the purpose of the two on the same product or item. This article will differentiate between the two taxes, Excise duty and sales tax, to remove any confusion.

What is Excise tax?

Excise tax refers to the tax that is levied upon production of an item and the manufacturer has to pay it when the finished good goes out of the factory. Thus it is also called as production tax or manufacture tax. This tax is not payable by the end consumer who buys the product and has to be borne by the manufacturer. Excise is different from customs as excise duty is levied on goods produced inside the country whereas custom duty is charged on good produced outside the country.

What is Sales tax?

Sales tax is a tax that is levied upon the end consumer of a product. Normally it is included in the MRP of the product so the consumer knows that he is paying the tax when he purchases an item from the market. In some cases, shopkeepers add it in the last of the invoice to keep it separate. This amount that a shopkeeper collects from the consumers is deposited by him to the government. This is a direct tax that is difficult to evade as a shopkeeper cannot hide his sales.

Difference between Excise Duty and Sales Tax

• Excise duty and sales tax are two different taxes

• Excise duty is on production whereas sales tax is on sale of the product

• Excise duty is paid by the manufacturer whereas sales tax is born by the end consumer.