ARTICLE ON

“EXCISE DUTY & IT’S IMPACT ON

BUSINESSES”

SUBMITTED TO: STUTI TIWARI

LAW OF TAXATION-II

SUBMITTED BY
Sachi Srivastava
19FLICDDN02157

SUBMISSION DATE: 09-04-2023

ICFAI LAW SCHOOL,

THE ICFAI UNIVERSITY, DEHRADUN

1|Page
 Excise duty and it's impact on business

 Introduction:

Excise duty is a tax that is levied on goods produced within a country or imported into it. This
tax is usually included in the price of the product and is paid by the manufacturer or importer.
Excise duty is one of the major sources of revenue for the government, and it has a significant
impact on businesses that produce or import goods. In this article, we will discuss the impact
of excise duty on businesses.

 Importance of excise duty:

Excise duty is an important source of revenue for governments around the world. Here are
some of the key reasons why excise duty is important:

Revenue generation: Excise duty is an important source of revenue for governments,

particularly in countries with a high level of manufacturing activity. The revenue generated
from excise duty can be used to fund public services such as education, healthcare, and
infrastructure.

Discouraging consumption of harmful goods: Excise duty can be used to discourage the
consumption of harmful goods such as alcohol and tobacco. By increasing the cost of these
goods through excise duty, governments can encourage people to consume less of them,
which can have positive impacts on public health.

Protecting domestic industries: Excise duty can be used to protect domestic industries from
foreign competition. By imposing excise duty on imported goods, governments can make it
more expensive for foreign producers to sell their products in the domestic market, which can
help protect local businesses.

Promoting sustainable practices: Excise duty can be used to encourage more sustainable
practices by imposing higher rates on products that have a higher environmental impact. For
example, governments may impose a higher rate of duty on vehicles with high carbon
emissions.

Balancing the budget: Excise duty can be an important tool for governments to balance their
budgets. By adjusting the rates of excise duty, governments can raise or lower revenue as
needed to manage their fiscal position.

Overall, excise duty is an important tool for governments to raise revenue, discourage harmful
consumption patterns, protect domestic industries, promote sustainable practices, and balance
their budgets.

2|Page
 Impact of Excise Duty on Business:

Cost of Production:
Excise duty increases the cost of production for manufacturers. The tax is levied on goods at
the production stage, and it is passed on to the consumers in the form of higher prices.
Manufacturers have to pay the excise duty on raw materials, which increases the cost of
production. This leads to higher prices for the consumers, which can result in lower sales for
the manufacturers.

Competitiveness:
Excise duty can affect the competitiveness of businesses. In some cases, businesses may have
to compete with imported goods that do not have to pay excise duty. This can make it difficult
for domestic manufacturers to compete on price, which can lead to lower sales and profits.

Revenue:
Excise duty is a significant source of revenue for the government. This revenue is used to fund
various projects and programs. However, high excise duty rates can lead to lower sales and
lower revenue for businesses. This can lead to job losses and a slowdown in the economy.

Compliance:
Businesses have to comply with various rules and regulations related to excise duty. They
have to maintain proper records of the goods produced and pay the tax on time. Failure to
comply with these regulations can result in fines and penalties. This can increase the
administrative burden on businesses, which can affect their profitability.

Smuggling:
High excise duty rates can lead to smuggling of goods. Smugglers can bring in goods from
other countries where the excise duty rates are lower. This can lead to a loss of revenue for the
government and a loss of market share for domestic manufacturers.

 Liability to pay Excise Duty:

The liability to pay excise duty on a business depends on the specific tax laws of the country
or region in question. In general, the business that produces or imports the excisable goods is
liable to pay excise duty. This means that the manufacturer or importer of the goods is
responsible for paying the duty to the government.

In some cases, businesses may pass on the cost of excise duty to their customers by including
it in the price of the goods. However, the liability to pay the duty still rests with the
manufacturer or importer.

Overall, the liability to pay excise duty on a business will depend on the specific tax laws of
the country or region in question, as well as the type of goods being produced or imported.
Businesses should consult with their tax advisors or legal counsel to ensure they are
complying with all applicable laws and regulations related to excise duty.

3|Page
 Conclusion:

In conclusion, excise duty has a significant impact on businesses. It increases the cost of
production, affects competitiveness, and leads to lower revenue for businesses. Businesses have
to comply with various regulations related to excise duty, which can increase their
administrative burden. High excise duty rates can also lead to smuggling of goods. Therefore,
the government should consider the impact of excise duty on businesses while setting the tax
rates. It should aim to strike a balance between revenue generation and the growth of
businesses.

4|Page
5|Page