In the modern era, there is hardly any use of internal taxes or external taxes because nowadays the tax system has become more updated and complicated. Usually, these terms were used to describe taxes in the 1700s and there are significant differences between them.
One of the main differences between internal taxes and external taxes is their basic principles. Internal taxes were considered as the primary taxes which were enacted on items and lands in a nation or colony. On the other hand, External taxes were more like export/import taxes imposed on goods that were shipped in and out of the nation.
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What Is Internal Taxes?
The internal tax was directly executed for the property and goods of the colonists. A perfect example of internal tax would be the Stamp Act of 1765. According to the Stamp Act of 1765, all the printed materials in the colonies should be printed on stamped paper which was produced in London. Moreover, these materials needed to have an embossed revenue stamp. This Stamp Act increased the cost of printed documents which was required for American trade, law, and the distribution of ideas in books and pamphlets.
The Stamp Act Documents
The Stamp Act included the taxing of 54 separate items. They were –
1. Legal Documents
2. Certificates (including Marriage)
4. Bills of Sale
5. Diplomas and Certificates
8. Any kind of declarations
11. Official documents
12. Court Orders
14. Advertisements in papers
16. Ship’s papers
17. Licenses including Liquor
20. Playing Cards
23. Publications in Foreign Tongues
Other items that were subject to the Stamp Act of 1765 were –
1. All the foreign tongues publications had to pay twice the normal rates
2. The internship system was also included in the Stamp Tax. Agreement contracts were taxed at the rate of 6d on every £1
3. Dice were also listed under the 1765 Stamp Act and they were the only non-paper items. It was the proof that the Stamp Tax had been paid
4. Stap tax was applied for both playing cards and dice therefore it can be considered as an indirect tax on gambling
Main Purpose Of The Stamp Act Of 1765
1. One of the main purposes of the stamp act was to raise funds and clear the War Debt gained during the French Indian Wars (Seven Years War)
2. The revenue from the stamp act was used to pay the cost of military presence in the American colonies. The main duty of the military was to enforce the new taxes and maintain the law and orders
3. Turn away the new taxes and duties from Britain to the American colonies
4. Proclaim British governmental authority over the American colonies
5. Re-enforce the policies of earlier tax Acts in relation to duties, taxes, and currency – refer to Revolutionary Timeline and Colonial, Continental, and Revolutionary Currency
6. Apply new taxes on paper documents
What Is External Taxes?
The external tax was imposed on importing goods into the American colonies. A good example of external tax is the Sugar Act of 1764. This act was imposed by the British and its main aim was to raise revenue to pay the expenses for the upkeep of their troops on American soil. This act was not very popular and led to widespread civil disturbances throughout the colonies.
Main Purpose Of The Sugar Act
1. The main purpose of the Sugar Act was to reduce the tax rate of molasses from six pence to three pence per gallon. Moreover, it is to ensure that the new tax could be collected by increased British military presence and controls
2. The Sugar Act has helped form British admiralty courts for tax violators. The British admiralty courts are used instead of the British admiralty courts where a judge decided the outcome
3. Control the trade by successfully closing the legal trade to non-British contractors. It was the main vision of the Sugar Act to stop trade between New England and the Middle colonies with French, Dutch, and Spanish in the West Indies.
4. Take proper action against the cargoes that violated the new rules
5. Decrease the exercise of smuggling bribery, extortion, and corruption in the colonies which were used to avoid paying taxes
6. The Sugar act had taxed more foreign goods including wines, coffee, cambric, and printed calico
7. Timber and iron were also included in the products list for the Sugar Act therefore timber and iron could only be traded with England
FAQs About Internal Taxes VS External Taxes
The American colonists considered the Stamp Act as the internal taxes and import duties as the external taxes. According to Benjamin Franklin American colonists are happy to pay the external taxes but they have objected to the right of Parliament only in laying internal taxes.
The Stamp Act is a prime example of internal tax and the Stamp Act had placed duties on a number of goods imported into the colonies, including tea, glass, paper, and paint, etc. So it’s clear that the Tea Act is an internal tax.
External tax is considered as the import tax and it is more oriented toward tariffs and export/import taxes for goods that are being shipping in and out of the country. This type of tax has limited use as they are only effective in shipping towns and people like merchants need to pay the external tax.
If a group of countries forms a customs union then it will require a common external tariff. Common external tariff means the same customs duties, import quotas, and other non-tariff barriers for all the goods entering a specific area regardless of the countries.
No, there is a significant difference between duty and tariff. Tariffs are a direct tax and they are applied to goods that are imported from a different country. On the other hand, duties are a type of indirect taxes that are imposed on the consumer of imported goods.