1773 – A Tax on Tea

1773 – A Tax on Tea

The East India Company (EIC) was a British joint-stock company formed in 1600 to pursue trade with the East Indies (Southeast Asia). The company ended up mainly trading with China and seizing control of the Indian subcontinent. The company traded in basic commodities such as cotton, silk, indigo dye, salt, saltpetre, tea and opium, and was so success it accounted for half the world’s trade.

Under its Charter with the British government, in the 1760’s EIC was required to sell its tea exclusively in London on which it paid a duty (averaging two shillings and six pence per pound). The North American colonies were required to purchase their tea from London and this was transacted by merchants who purchased the tea and transported it to North America for eventual retail sale.

Due to the markups imposed by the merchants, and the tea tax imposed by the Townshend Acts of 1767, the British tea was expensive when landed in North America. Consequently, with high demand for ‘cheaper tea’, some American merchants smuggled in and sold Dutch tea. Although the Dutch tea had an inferior taste compared to the British tea, it outsold the British tea by 2/1.

To undercut the price of illegal tea, and rescue the financially troubled EIC, Britain introduced the Tea Act in 1773. The Act granted EIC the right to directly ship its tea to North America and the right to the duty-free export of tea from Britain. The American colonists opposed the Tea Act because it left the Townshend Act (and the collecting of tax on the colonies), and EIC’s tea monopoly, in force. Resistance to the Tea Act was widespread in the colony with British tea being boycotted, refused entry to American ports, and in some cases, destroyed. In Boston, this resistance culminated in the Boston Tea Party on December 16, 1773, when colonists boarded tea ships anchored in the harbour and dumped their tea cargo overboard. 

The deteriorating relationship between Britain and America led to the eruption of the American War of Independence in April 1775. Subsequently, in 1778, Britain passed the Taxation of Colonies Act 1778, which repealed a number of taxes (including the tea tax).

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