What are the merits and demerits of excise duty?

Answer 1

Excise duty, a tax imposed on specific goods and services, has several merits, including generating significant revenue for governments and discouraging the consumption of harmful products like tobacco and alcohol. Additionally, it can promote domestic industries by taxing imported goods more heavily. However, demerits include the potential for increased prices for consumers, which can disproportionately affect low-income households, and the risk of smuggling or illegal trade as consumers seek cheaper alternatives. Furthermore, excessive excise duties may lead to reduced consumption and economic activity in certain sectors.