Internal and external taxes were the pillars of tax systems in the 1700s. However, such taxes and their distinction have faded out with time. The prime difference between internal taxes vs. external taxes was their principles.
The main taxes that apply to items and properties or lands within a colony or nation are called internal taxes. External taxes refer to taxes based on imported or exported items. So, external taxes were important when shipping goods out of a country or colony.
However, these are insufficient to highlight the differences between internal and external taxes. Let’s understand these taxes in detail and find out other related information.
Definition of Internal Taxes
What were internal taxes? Any internal taxes referred to the taxes imposed on goods and properties of the colonists. The idea of internal taxes vs. external taxes was more popular in European countries.
However, the Stamp Act of 1765 is the right example of internal tax. The Stamp Act of 1765 required all printed materials to be printed on stamped paper produced in London. On the other hand, all these materials must have had an embossed revenue stamp.
Consequently, this internal tax system raised the cost of printed documents required for American trade, distribution, and law of books and pamphlets. What kind of documents were under the Stamp Act of 1765?
Well, the Stamp Act of 1765 included the following documents:
- Certificates (including marriage certificates)
- Bills of sale
- Newspapers
- Legal documents
- Wills
- Diplomas and certificates
- Official documents
- Almanacs
- Any type of declaration
- Calendars
- Contracts
- Licenses (including liquor)
- Pamphlets
- Court orders
- Ship’s papers
- Advertisements in papers
- Donations
- Dice
- Publications in Foreign Tongues
- Playing cards
Besides this, the Stamp Act of 1765 also mentioned the regulations below:
- Publications dealing with foreign tongues had to pay twice the standard rates.
- The Stamp Act also included the internship system. For example, agreement contracts had to pay a tax of 6d or pence for every £1.
- However, you might have noticed that the Stamp Act listed dice, and they were non-paper items. It was the only non-paper item that claimed the internal tax.
- On the other hand, the Stamp Act of 1765 included playing cards besides dice. So, experts sometimes consider it as an indirect tax on gambling.
Purpose of the Stamp Act of 1765
What were internal taxes? You are aware of that by now. Additionally, you have learnt about the Stamp Act of 1765. However, what were the purposes of this internal tax? Let’s find out:
- Like any other taxes, the colonists designed the Stamp Act to raise funds. After all, lots of wars were going on then. Reportedly, the revenue from the Stamp Act helped colonists clear the War Debt that resulted from the French Indians Wars.
- In addition, the revenue from the Stamp Act went to the cost of military presence in American colonies. Moreover, the responsibility of the military was to enact new taxes and handle the law and orders.
- On the other hand, the Stamp Act of 1765 helped the British government to proclaim their authority over American colonies.
- Additionally, the Stamp Act assisted in collecting taxes and duties from Great Britain to the American colonies.
- Moreover, the Stamp Act of 1975 reinforced the earlier taxes related to taxes, duties, and currencies.
Definition of External Taxes
Similarly, colonists brought in the concept of external taxes to regulate trade in American colonies. However, external taxes were applied to importing goods to the American colonies. A perfect example of external taxes is the Sugar Act of 1764.
Reportedly, the British government imposed the Sugar Act of 1764. The prime objective of this act was to increase the revenue to pay for the expenses incurred by their troops in the American colonies.
However, this act was less popular than the Stamp Act of 1765. Additionally, the Sugar Act of 1764 created civil disturbance throughout many colonies.
Purposes of the Sugar Act of 1764
External taxes focussed towards export or import taxes and tariffs levied against products shipped in and out of the country. However, these taxes had limited scope and affected only shipping towns. Additionally, merchants had to pay external taxes to regulate trade.
On a related note, the Sugar Act came out with the following purposes:
- The most important purpose of the Sugar Act of 1764 was to decrease the tax rate of molasses from 6d to 3d per gallon.
- The British military presence and controls were also mandatory while collecting the new tax.
- Moreover, the Sugar Act of 1764 assisted British admiralty courts in identifying tax violators.
- On the other hand, the Sugar Act of 1764 helped restrict trade to non-British contractors. The act successfully stopped trade between New England and the Middle Colonies along with Spanish, French, and Dutch in the West Indies.
- In addition, the Sugar Act included foreign goods such as coffee, wines, printed calico, and cambric.
- The act also helped the authority to take the right action against the cargos violating the new taxes and rules.
- Another purpose of the Sugar Act of 1764 was to reduce the exercise of extortion, smuggling bribery, and corruption in the colonies that avoided paying taxes.
- Furthermore, the Sugar Act enlisted timber and iron under new regulations. So, timber and iron could only be traded with England and no one else.
Differences Between Internal Taxes and External Taxes
According to experts, the Stamp Act created extra unrest that led to the American Revolution. However, debates existed regarding whether the Stamp Act was an internal tax, especially in the American colonies.
Many taxes didn’t identify as internal or external taxes, and the line between them blurred out eventually. For example, internal taxes are applied to only some specific goods received at selected ports.
External taxes applied to everyone who bought imported goods rather than only the distributors. Such characteristics made it difficult to spot the differences between internal taxes and external taxes.
However, the idea of both internal and external taxes fell out of relevance gradually. Local and federal governments now decide on taxes regarding different goods and services. On a related note, the current tax systems have become complicated compared to what they were in the 1700s.
Here’s a small heads-up if you are looking for similarities between the present internal and external tax systems. You might consider the sales tax an internal tax as the local government deals with it, not the federal government.
On a contrary note, import and export taxes are imposed on the country-by-country and case-by-case basis. So, the concept of internal and external taxes is no longer valid.
Summing up…
Distinguishing between internal taxes vs. external taxes was a difficult job. For example, American colonists considered the Stamp Act of 1765 an internal tax and import duties as external taxes. The Tea Act was also considered a part of the Stamp Act or internal taxes.
However, the tax concept has progressed significantly in the last few centuries. So, the idea of internal and external taxes doesn’t hold the system anymore.
