Significance of the Tea Act, 1773
It is important to understand that the Tea Act actually placed no new tax on tea. Instead it simply gave a tax break to the East India Tea company.
With the existing tax still on the books from the Townshend Duties, East India Tea company was loosing money because its legitimately imported tea could not compete with the tea being illegally smuggled by the colonial merchants. Obviously the British government preferred to help the struggling East India Co. than to see colonial smugglers profiting and using their newly gained financial power to sponsor anti-British protests.
The new measure was also supposed to win the minds of tea consumers in America by driving down the market price of tea. But in the situation already aggrevated by the previous heavy-handed tax measures, this obvious economic benefit was overlooked by the population and the new law was regarded at “Taxation without representation”.
Below is the detailed description of how the Tea Act actually worked for the East India Tea Co. trade with the colonies.
In 1770, Lord North had repealed four of the five Townshend Duties, keeping only the tax on tea. The American colonists had refused to buy the commodity, which had resulted in financial difficulties for the East India Company.
In 1773 Lord North's ministry had passed the Regulating Act for India to control the activities of the Company. The government also took measures to help the East India Company to increase its sales by passing the Tea Act.
Initially the East India Company had suggested that the 3d per lb tax should be removed to encourage the colonists to buy the tea. North could not do this on principle, since the Declaratory Act passed by Rockingham's ministry did say that the British government could legislate for the colonies, and Britain needed (in his eyes) to maintain the right to legislate.
The Tea Act taxed the tea at source (i.e. in India) so there was no tax collection in the colonies. The act allowed the tea to go directly to America instead of having to be imported to Britain and then re-exported to the colonies. This made the tea 9d per lb cheaper, even with the 3d tax. It also allowed the East India Company to sell the tea exclusively to chosen merchants (consignees) in the American colonies. This established monopolies in America and offended colonial merchants.
In addition the government made a loan of £1.4 million to the East India Company which was to be allowed to ship tea directly and on its own account to America. The Company would pay the 3d duty on the tea's entry into the colonies but was exempt from reimbursing the English customs for the 1/- English duty which would previously have fallen on it. The consequence was that tea would sell at 10/- per lb in America, not the £1 which it had fetched recently. This would increase its consumption and so the Company would be helped out of its financial difficulties. Furthermore, the Company aided the government by taking measures against smuggling now that it was delivering direct to America. The tea was consigned in known quantities and to authorized merchants acting as Company agents. However, by that time, the colonists were suspicious of British motives and the Tea Act led directly to the Boston Tea Party.