Certified Financial Management Specialist Practice Exam

What type of taxes are levied on specific goods or services, such as gasoline or tobacco?

1. Individual Income Taxes

2. Excise Taxes

3. Sales Taxes

4. Property Taxes

The correct answer is: Excise Taxes

Excise taxes are levied specifically on certain goods or services, and they are often included in the price of the product. These taxes are targeted at items that are deemed harmful to society or are used frequently, such as gasoline, tobacco, alcohol, and certain luxury items. The purpose of excise taxes can be twofold: to generate revenue for the government and to discourage excessive consumption of these goods. For instance, higher excise taxes on tobacco products aim to reduce smoking rates, while taxes on gasoline can be used to fund infrastructure improvements related to transportation. This makes excise taxes distinctly different from individual income taxes, which are based on earnings, sales taxes that apply to a wide array of goods and services at the point of sale, and property taxes that are levied on real estate property. Understanding the role and application of excise taxes helps in grasping their significance in fiscal policy and government revenue generation.