3. Selected Excise Duties in OECD Countries

Although excise may be levied on a broad range of products, excise taxes on alcohol, tobacco and hydrocarbon oils in particular raise significant revenues for governments in all OECD countries. In recent decades, governments have increasingly used these taxes not only to raise revenue but also to influence customer behaviour where consumption of certain products is considered harmful to health or to the environment.

The main characteristics of excise duties, and their policy objectives as revenue raisers and tools to influence consumer behaviour, are largely shared amongst OECD countries. However, their rates and structure differ significantly and it is therefore not straightforward to estimate the order of magnitude of the total tax burden on specific excisable goods. For example, standard excise rates on beer may be tempered by the application of reduced rates on small breweries. For tobacco products, different duty rates applicable to substitutes (cigarettes and rolling tobacco) may also blur the picture. Similarly, excise duties on road fuels reflect only a part of automotive taxation policy that also includes road tolls, taxes on registration and use of vehicles, taxes on insurance, etc.

This chapter provides an overview of the main differences in the structure of excise duties and illustrates their increasing use as an instrument to influence behaviour. It includes an overview of the key characteristics of excise duties and their revenue trends (Section 3.2). It then looks in some further detail at the excise rates structure for alcoholic beverages (Section 3.3), tobacco products (Section 3.4) and heating fuel oil for households (Section 3.5). The taxation of road fuels is discussed in Chapter 4 on vehicle taxation.

Excise, unlike other general consumption taxes (incl. value added taxes - VAT), is levied only on specific goods. Although many products can be subject to excise, such as chocolate, coffee and orange juice, this chapter focuses on the three principal product groups that are subject to excise in all OECD countries: alcoholic beverages, mineral oils and tobacco products.

Before looking at the key characteristics of these three groups and their comparative treatment in different countries, it is useful to recall the following general characteristics of excise duties:

  • Excise duties are generally calculated by reference to the weight, volume, strength, or quantity of the product, combined in some cases with the value, but sometimes on a value basis only.

  • Excise duties normally become payable when the goods enter free circulation. Transfers of ownership of excisable goods can take place within a controlled warehousing environment or between registered operators without creating an excise charge.

  • The excise system is characterised by small numbers of taxpayers that are active in the manufacturing, wholesale stage or importation of the three main product groups.

Unlike VAT, which is collected through a staged collection process by all the stakeholders in the value chain until the stage of final consumption (see Chapter 2), excise duties are normally collected only once, from a registered operator, at the time the goods are released for consumption. In the European Union, the movement of excisable products between Member States takes place under a duty-suspension arrangement until the moment these products are released for free circulation. In the United States, excise duties are levied by the federal government and by many states and local governments. Federal excise taxes are collected by the Internal Revenue Service while states may impose the tax according to their own rules and rates.

The level of revenues raised by excise duties and their social and economic impact depend on the structure of these taxes. There are two main ways of levying excise duties on excisable products: ad valorem and ad quantum. Under an ad quantum excise (also referred to as a “specific” excise), a fixed amount of tax is levied per unit of the product (e.g. USD 1 per litre), which means that this is a tax on the volume of sales. Under an ad valorem excise, the tax is levied as a proportion of the product price (e.g. 20% of the selling price), and it is thus a tax on the value of sales. Excise duties can also be levied as a mix of ad valorem and ad quantum excises in a number of cases, such as for instance the tobacco taxes as presented in Annex Table 3.A.4. Ad quantum taxes requires a precise definition of the nature and characteristics of the tax base (e.g. a litre of unleaded gasoline with 94 RON) while an ad valorem tax is simply based on the price of the excisable good.

Most excisable products naturally present a bundle of different characteristics (volume, weight, strength, octane, alcoholic or carbon content, etc.). Ad quantum taxes remain unaffected by changes in the product characteristics that have not been defined as being relevant for the tax base, whereas ad valorem taxes bear on all the characteristics of the product that are reflected in the price. Depending on the structure of the excise, its impact on production and consumption is different. For example, a specific ad quantum excise on beer (per % absolute alcohol in volume) may encourage brewers to develop varieties of beer, including more exclusive labels, that could be offered at higher prices while remaining subject to the same level of excise as the cheaper product. On the other hand, ad valorem taxes may discourage costly improvements in product quality or encourage consumers to switch to low-cost products. An ad quantum excise may be easier to administer, because it requires only the determination of the physical quantity of the product taxed.

The tax revenue raised from excise duties and the revenue impact of changes of the design of these taxes are influenced by a wide range of factors. When assessing the impact of change to excise duty regimes, it is important to note that excise is normally part of the VAT base, i.e. VAT is usually levied on the duty-paid value of the excise products. The revenue impact of any changes in an excise tax will thus also be influenced by the level of the VAT rate on a given excisable product.

There may be a case for a combination of ad quantum and ad valorem taxes if the tax is aimed at discouraging consumption of, or maximising revenue from, both high and low value products. Where there are large differences in prices of a product, an ad quantum tax will for instance be less likely to reduce demand for the high value product and will raise less revenue from it than an ad valorem tax. Higher income consumers who are more likely to consume high value products may be less responsive than low-income groups to the imposition of a given tax (although ad quantum taxes may reduce the price differentials). If the aim is to influence behaviour, the imposition of a higher aggregate tax on these expensive products will therefore be needed. To achieve this, an ad valorem tax can be combined with an ad quantum tax, which is common in tobacco taxation (see Section 3.3 below). Setting the “optimal” balance between ad quantum and ad valorem components of excise will depend of the products concerned, the market structure and the policy objective; hence, there is no optimal balance between the two taxes in absolute (Keen, 1998[1])

Finally, illicit trade and opportunities for cross border shopping are other factors that might influence the revenue potential and the impact on consumption of excisable products.

All these factors play a role in governments’ policies depending on their policy objectives, whether these are to reduce consumption of specific products considered harmful to health while protecting certain sectors or small producers or to increase revenue or both.

In the OECD countries, the relative share of excise duties in total tax revenue has seen a long decline between 1975, when they accounted for 10.5% on average, and 2020 when these taxes represented 6.9% of total tax revenue on average (see Annex Table 1.A.5). Although some large differences between countries can be observed, with excise accounting for 1.8% of total tax revenue in New Zealand and 17.2% in Türkiye, the weight of excise duties is between 4% and 9% of total tax revenue in the majority of OECD countries (28 out of 38). These taxes account for less than 5% of total taxes in nine OECD countries (Australia, Austria, Belgium, Canada, Israel, Japan, New Zealand, Switzerland and the United States). They account for more than 10% of total tax revenue in four OECD countries (Latvia, Lithuania, Mexico and Türkiye) down from thirteen OECD countries in 2010 (see also Chapter 1).

Although taxes on alcoholic beverages are amongst the oldest sources of governmental revenue, the growing importance of other forms of consumption taxes, in particular general consumption taxes such as VAT, has considerably reduced the share of these taxes in total taxation. There has however been a resurgence of interest in specific taxation of alcoholic beverages in recent years as a means of influencing consumer behaviour in line with public health policies.

Alcoholic beverages exist in a wide variety across the world and are produced from a wide range of fermented or distilled ingredients (grapes, apples, malt, rice, etc.). The Customs Combined Nomenclature Code (CN) provides a classification of alcoholic beverages with which excise categories are intrinsically linked. The CN includes six main categories of alcoholic beverages: beer made from malt (code 22.03); wine of fresh grapes, including fortified wines (code 22.04); vermouth and other wine of fresh grapes flavoured with plants or aromatic substances (code 22.05); other fermented beverages (for example, cider, perry, mead), mixtures of fermented beverages and mixtures of fermented beverages and non-alcoholic beverages (code 22.06); undenatured ethyl alcohol of an alcoholic strength of 80 % pure alcohol by volume (abv) or higher (code 22.07) and undenatured ethyl alcohol of an alcoholic strength of less than 80 % abv (code 22.08). There are inevitably subdivisions within each of these broad categories but the use of the internationally accepted nomenclature enhances consistency and helps to avoid contradictory definitions in applying rates. Except otherwise mentioned in country notes, Annex Table 3.A.1 and Annex Table 3.A.2 cover products under CN codes 22.03 and 22.04. Annex Table 3.A.3 covers products not included in Annex Table 3.A.1 and Annex Table 3.A.2.

Given the long history of alcohol taxation, several methods and measures have been developed over time for assessing the alcoholic content of a product. The alcohol by volume (abv) is now the standard measure of the level of alcohol contained in an alcoholic beverage. It is defined as the number of litres of pure ethanol present in 100 litres of solution at 20 °C, expressed as a percentage of the total volume. Annex Table 3.A.1 and Annex Table 3.A.2 provide an overview of excise taxation of beer and wine, whereby the alcoholic content is expressed in percentage abv. In some countries, the excise taxation of beer calculates the alcoholic content in degree Plato (measuring the density of beer wort in terms of percentage of extract by weight). To allow cross-country comparison, Annex Table 3.A.1 shows the estimated amounts of tax per percentage abv for these countries based on a conversion from the amounts of tax per degree Plato. There is no precise method to convert from degrees Plato and alcohol per volume but for tax purposes, it is assumed that 1% abv is equivalent to 2.5 degrees Plato. The tax amounts per degree Plato have thus been multiplied by 2.5 to obtain the rates in degree abv for the relevant countries in Annex Table 3.A.1.

Excise can be applied to alcoholic beverages in two main ways. The duty can be either ad quantum in relation to the alcoholic content of the product or ad valorem calculated according to the value of the product. The two methods are generally combined in OECD countries where both the volume based on alcohol content and the value of the product are taken into account for determining the total amount of taxes.

Member States of the European Union apply a harmonised structure for excise duties on alcohol and alcoholic beverages (Council Directives 92/83/EEC on the harmonisation of the structures of excise duties on alcohol and alcoholic beverages; and 92/84/EEC on the approximation of the rates of excise duty on alcohol and alcoholic beverages; complemented by Directive EU 2020/262 laying down general arrangements for excise duty and their movement between Member States).

The World Health Organization recommends increasing taxes on alcoholic beverages as a one of the most cost-effective policies to lower drinking levels in order to combat alcohol-related diseases, including cardiovascular diseases, cancer and other non communicable diseases (World Health Organization, 2010[2]). From a public health perspective, it has been argued that the best duty structure links the taxation level to alcohol content, keeps pace with inflation and avoids substantial disparities between different beverage types (Colin Angus, 2019[3]). It is recognised, however, that the alcohol market creates employment in agriculture, industry and distribution while generating tax revenue for governments. Public health measures to reduce harmful use of alcohol are therefore often balanced with other goals and considerations such as maintaining ancestral industries, safeguarding a free market and consumer choice and ensuring government revenues.

Beer is taxed under both VAT and excise duties in all OECD countries. In addition, the European Directives have set a minimum excise duty in beer (i.e. EUR 1.87 per hl/degree alc.), which is low enough not to be binding for the vast majority of the Member States and also provides for a possible reduction of excise for beer produced by small and independent breweries.

Annex Table 3.A.1 illustrates the complexity of the computation of excise duties in many instances. The existence of differing subcategories and specific rates (e.g. for low-alcohol products and for small breweries) and calculations based on both the value and the nature of the product, make it challenging to estimate the precise excise tax burden at the consumer level. This Table also illustrates the large differences of taxation levels between OECD countries, with the standard excise rate on beer varying from less than USD 5 per hectolitre per % abv (Czech Republic, Germany, Luxembourg, Slovak Republic and Türkiye) up to more than USD 20 (Finland, Ireland, New Zealand, Sweden and United Kingdom) and the highest levels being observed in Finland (USD 44.76) and Israel (USD 74.30). Three quarters of OECD countries (30 out of 38) apply reduced rates to small breweries, with a progressive increase in the tax rate according to their annual production in many cases. country notes to Table 3.A.1 illustrate the wide diversity of these tax regimes. Four OECD countries do not apply any ad quantum excise to beer but only ad valorem taxes (Chile, Colombia, Korea and Mexico)

All OECD countries apply the standard VAT rate to beer, except Iceland, which applies the reduced rate of 11%, and the United States where there is no VAT but where sales taxes are levied at the subnational level.

Annex Table 3.A.2 considers two main categories of wine: still wine and sparkling wine. In addition, it shows the difference of tax levels between wine and “low-alcohol wine” as defined by member countries. Excise rates on wine vary widely across OECD countries from zero (Austria, Czech Republic, Germany, Greece, Hungary, Israel, Italy, Luxembourg, Portugal, Slovak Republic, Slovenia, Spain and Switzerland) up to more than USD 4 per litre in Finland and Ireland and more than USD 6 per litre in Norway. In 10 OECD countries, sparkling wine is subject to a higher excise rate than still wine (Belgium, Czech Republic, Denmark, France, Hungary, Ireland, Slovak Republic, Türkiye, the United Kingdom and the United States. Four OECD countries do not apply any ad quantum excise to wine but only ad valorem taxes (Chile, Colombia, Korea and Mexico).

All OECD countries apply the standard VAT rate to wine, except Colombia, Luxembourg and Portugal that apply reduced VAT rates of respectively 5%, 14% and 13% to still wine and the United States where there is no VAT but rather retail sales taxes at the subnational level.

For other alcoholic beverages than beer and wine (Annex Table 3.A.3), excise duty rates also vary across OECD countries, but to a lesser extent as there are no zero excise rates. These rates range from less than USD 15 per litre of absolute alcohol (Austria, Canada, Czech Republic, Hungary, Italy, Luxembourg, Slovak Republic, Spain and the United States) to up to USD 95 per litre of absolute alcohol in Norway and USD 128 in Iceland. The only countries to apply a reduced VAT rate to these alcoholic beverages are Colombia (5%), Iceland (11%) and Colombia (5%). The United States does not apply a federal VAT but retail sales taxes are levied at the subnational level.

Four OECD countries do not apply any ad quantum excise to these alcoholic beverages but only ad valorem taxes (Chile, Colombia, Korea and Mexico). Country notes to Annex Table 3.A.3 provide a description of the specific regimes applied in OECD countries.

Historically, as for alcohol taxation, the primary motivation for tobacco taxation was the raising of government revenue. Nearly all OECD countries have taxed tobacco products for many decades and even for centuries in some cases. The significant tobacco consumption and the relatively low elasticity of demand for tobacco products (i.e. the less than proportionate response of tobacco product consumption to a moderate price increase) along with the small number of producers made these products a particularly attractive target for excise and other taxation. Over time, the clear evidence of the negative health consequences of tobacco use have turned tobacco taxation increasingly into a tool to reduce tobacco consumption. The World Health Organisation (WHO) provides economic evidence that increased taxes that are passed on to tobacco users effectively reduce tobacco consumption. It shows that tobacco taxation is highly cost-effective, combining the potential for considerable impact on tobacco consumption with a low implementation cost. Returns and economic benefits from tobacco taxation have proven to be several times higher than the cost of these measures (World Health Organisation, 2021[4]).

As with alcohol and mineral oils, tobacco products are subdivided into a number of categories,0 i.e. cigarettes, cigars, cigarette rolling tobacco and pipe tobacco. New tobacco products have also emerged such as Heated Tobacco Products (HTP), and Electronic Nicotine Delivery Systems (ENDS), which may be subject to specific tax rates (but are outside the scope of this publication).

Unlike excises on alcoholic beverages and mineral oils, which are almost exclusively ad quantum, the majority of countries use a combination of ad quantum and ad valorem elements to calculate excise on tobacco products.

Annex Table 3.A.4 and Annex Table 3.A.5 show large differences in tax rates among OECD countries. Differences in tax levels can also exist in jurisdictions that allow excises to be levied at the sub-national level, such as in the United States where, for instance, local excise rates on a pack of 20 cigarettes (on top of the federal tax) range from USD 0.17 in Missouri and USD 0.37 in Georgia to USD 4.50 in the District of Columbia and USD 4.35 in Connecticut (Federation of Tax Administrators, 2022[5])

It should be noted that the individual rates or amounts of tax (ad valorem/ad quantum excise, VAT, duties, etc.) per type of tobacco product as shown in Annex Table 3.A.4 are not sufficient to assess the overall tax burden on those products. Ad valorem excises can be assessed on a range of bases (producer price, import price, retail price). A high ad valorem tax on a given product group can be balanced with a low ad quantum excise (or vice versa) when excise is levied on the basis of a mix of both ad valorem and ad quantum taxes. Also the combined effect of the VAT and the excise duties needs to be assessed. A better understanding of the relative taxation levels can be gained by calculating the total tax burden (TTB) as a share of the total retail selling price (RSP) of a given product to the final consumer. This is illustrated in Annex Table 3.A.5 that shows the total tax burden (ad quantum excise + ad valorem excise + VAT) for cigarettes as a share of the retail selling price (RSP) of a pack of 20 cigarettes in OECD countries, based on data extracted from the WHO database (World Health Organization, 2021[6]). This table shows that the total tax burden for a pack of 20 cigarettes varies widely across OECD countries, from 39.97% of the RSP in the United States (national average estimate of federal and local taxes) and 54.96% in Iceland to 88.23% in Finland and 87.64 % in Estonia. The tax burden is above 60% of the RSP in all the OECD countries, except in Iceland and the United States; and above 75% (as recommended by the WHO) in 21 OECD countries (Belgium, Chile, Czech Republic, Denmark, Estonia, Finland, France, Greece, Ireland, Israel, Italy, Latvia, Netherlands, New Zealand, Poland, Portugal, Slovak Republic, Slovenia, Spain, Türkiye and the United Kingdom). The figures provided by the WHO relate to the most sold brand (MSB) of cigarettes in the country. In the European Union, the tax rates calculations are rather based on the Weighted Average Price (WAP) of all brands sold on the market (since 2011). Annex Table 3.A.5 also shows that there may be substantial differences in the pre-tax prices, depending on the structure of the market, the geographic location (particularly taking into account the ease of cross-border shopping) and the relevant tax structure.

Annex Table 3.A.6 shows that almost all OECD countries tax heating fuel oil at lower rates than motor fuels, including automotive diesel, which is technically the same product. In the European Union, a minimum rate is established by the Energy Tax Directive for heating fuel (EUR 0.021/litre), which is much lower than the rate for motor fuel (EUR 0.3/litre of diesel). Only Israel applies the same excise rate to both heating fuel oil and automotive diesel. The Netherlands applies a higher excise rate to heating oil than automotive diesel (see Annex Table 4.A.5).

The large differences in the excise duty rates are reflected in the wide variation in heating oil consumer prices across the OECD, ranging from USD 1.070/litre in Lithuania and 1.075/litre in Belgium to USD 1.958/litre in Denmark and USD 1.855/litre in Israel.

All OECD countries apply the standard VAT rate to heating fuel oil, except Ireland, Luxembourg and the United Kingdom (by contrast, none of the OECD countries applies a reduced VAT rate to automotive diesel or gasoline).

Four OECD countries (Hungary, Netherlands, Poland and Slovenia) reported a temporary reduction of their excise rates on heating fuel oil in the course of the year 2022 to counter rising energy costs (see country notes to Annex Table 3.A.6).


[3] Colin Angus, J. (2019), “Comparing alcohol taxation throughout the European Union”, Addiction notes.

[5] Federation of Tax Administrators (2022), State excise tax rates on cigarettes.

[1] Keen, M. (1998), “The Balance between Specific and Ad Valorem Taxation”, Fiscal Studies, Vol. 19/1, pp. 1-37, https://doi.org/10.1111/j.1475-5890.1998.tb00274.x.

[4] World Health Organisation (2021), WHO Technical manual on tobacco tax policy and administration, WHO, Geneva.

[6] World Health Organization (2021), WHO report on the global tobacco epidemic 2021 web annex IX, https://apps.who.int/iris/handle/10665/343468.

[2] World Health Organization (2010), Global strategy to reduce the harmful use of alcohol, World Health Organisation.

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