The Excise Duty table is not a correct way of understanding the relative taxes on different oils. The only correct way of understanding the relative taxes is by percentage of the price.
Consider this: If cars were taxed according to their respective weight (as indicated in the legal document) and if taxes per kilogramme were ‘harmonised’ (as requested by the Senators), then the owner of the most expensive Ferrari and the owner of a Peugeot 2008 Crossover would pay more or less the same tax – since the two vehicles both weigh around 1,100kg. And the owner of a Peugeot Partner will pay more tax than the owner of a Ferrari.
Would that make any economic sense? Would you say that a Peugeot Partner should be taxed the same way as the owner of the Ferrari?
Of course this does not make any sense. What makes sense is the tax paid in relation to the value of the economic good (its price), not in relation to its weight.
The comparative tax rates put forward by the Senators – based on weight – have no meaning or value from an economic point of view. What is meaningful, from an economic point of view, is therefore to compare the amount of tax paid in proportion of the price of the good; what can be called ‘the ad valorem equivalent’ of the excise rates fixed by tax law.
Accurate calculation of taxes
How do we undertake the calculations, to determine the ad valorem equivalent? To compute the equivalent to the taxes specified in Table 1, one first needs the price of those vegetable oils on the world market. Those prices are reported in Figure 1.
Clearly, it turns out that olive oil is, so to speak, the Ferrari of vegetable oils. It is substantially more expensive than other vegetable oils, including palm oil.
The large difference we observe between the prices of those various commodities is not an accident. Figure 2 clearly demonstrates that the price difference is a resilient feature of those commodity prices over a long period of time (surely due in large part to differences in cost of production).
Based on the data provided in Table 1 and Figure 1, a simple calculation gives the ad valorem equivalent of the excise tax rates fixed by the law.