Difference Between VAT and Excise Duty

The system of taxes is practised in almost every country in the world. The most common reason is to generate revenues for the expenditures of the government.

Taxes may be levied on federal level, local and state level. It is important to understand the difference between various types of taxes to understand the infrastructure of our country.

VAT vs Excise Duty

The main difference between VAT and excise duty is that value-added tax (VAT) is the tax on goods when the value is added to it as it moves from the production stage to the final stage of reaching the market.

VAT vs Excise Duty 1

Excise duty is the tax added to the manufacturing of goods. It is imposed at the time of manufacturing and not at the time of sale unlike VAT. Their difference is best understood by this example here.

When the company is making soap, then after it is made it has to pay excise duty even before selling the soap. The other features that differentiate between VAT and excise duty are shown in the comparison table below.


Comparison Table Between VAT and Excise Duty (in Tabular Form)

Parameter of ComparisonVATExcise Duty
DefinitionTax added on goods as it travels from the point of production to the point of sale.Tax added on the manufacturing of stocks.
ImposedAfter the product has entered the final stage of selling.After the product has been manufactured.
Paid byCustomers who buy the product.The company who is manufacturing the product.
ImplementationMethod of collection and timing of collection.Ad valorem and specific.
ExamplesBiscuits, candy, soap, toothpaste, shoes.Tobacco, alcohol, fuel.


What is VAT?

VAT stands for value added tax. It is the amount of cost added to the product after it has reached the final stage of trading. VAT system is exercised in over 160 countries around the world.

The customer only needs to pay VAT for the end product and not for the raw materials that were needed to manufacture the product.

The tax rate is decided as a percentage on the end product by the state. It is implemented in two ways:

  1. Method of collection
  2. Timing of collection

In the method of collection, the seller sends the buyer an invoice that has the amount of tax in it. The other way is that no specific invoice is generated and it is calculated on the value added to the product.

vat 2

What is Excise Duty?

Excise duty is the amount of tax added at the time of manufacturing of the goods. Customers may not get to see this amount directly as the company needs to pay them to the excise departments according to the government’s infrastructure.

As a result, the manufacturers increase the price of the end products to accommodate that cost. It is a business tax that the companies need to pay apart from other taxes like income tax.

It is implemented in one of the two ways:

  1. Ad valorem
  2. Specific

In ad valorem, there is a fixed percentage of certain types of goods. Specific amount is applied to purchases that have a high social cost like airline tickets, cigarettes and alcohol.

excise duty

Main Differences Between VAT and Excise Duty

Some of the features that differentiate between VAT and excise duty are given below:

  1. VAT implementation is carried out by the method of collection and the timing of collection. Excise duty implementation is carried out by the ad valorem method and the specific method.
  2. Examples of VAT goods include biscuits, candy, soap and toothpaste, shoes while examples of excise duty goods include tobacco, alcohol, airline tickets and motor fuel.



Having a sound knowledge about the different types of taxes and their working principles also proves useful when you are about to establish your business.

Individuals or corporations who do not pay their taxes are punishable by law and is called tax evasion. So the payment of taxes is compulsory for them.


  1. https://pdfs.semanticscholar.org/f474/c44a44902007cca8fe0759b81ba2a5ab44e7.pdf
  2. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-5965.1988.tb00335.x
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