Previously, the East India Company had been required to sell its tea exclusively in London on which it paid a duty which averaged two shillings and six pence per pound. The East India company would now be allowed to export its tea directly to the colonies without paying the taxes it was paying in London "to export such tea to any of the British colonies or plantations in America, or to foreign parts, discharged from the payment of any customs or duties whatsoever", and instead only required to pay the Townshend import duty of three pence a pound.
This Act was intended to aid the company's finances, which were close to collapse because it was paying the British government £400,000 pounds per year, war and famine in India and economic weakness in European markets. Benjamin Franklin proposed to the British government the idea of eliminating the tax on tea as a way to help the East India company. Britain expected the colonists to be happy to be paying less for their tea. Before this Act, smugglers imported 900,000 pounds of cheap foreign tea a year. The quality of the smuggled tea did not match the quality of the dutiable East Indian Tea of which the Americans bought 562,000 pounds per year. The colonists knew the British wanted to coerce them from boycotting British goods, which hurt their economy. However, some colonists deemed the tea "unfavorable". Although the British tea was more appealing in taste, some Patriots began to drink tea produced in the colonies. This did not, however, achieve its complete expected result of damaging the British tea trade.
The East India Trading Company was a favored monopoly with a lobby in Parliament. Ultimately, this act led to widespread boycotts of tea throughout the colonies, and, eventually, to the Boston Tea Party where American colonists, believed to be the Sons of Liberty, dressed up like Native Americans and threw 342 crates of tea from the East India Company ships Dartmouth, the Eleanor, and the Beaver into Boston Harbor. In Britain, even those politicians considered friends of the colonies were appalled and this act united all parties there against the colonies. This act, and the retaliatory measures taken by the British government afterwards, united the colonies even more in their frustrations against Britain, and was one of the many causes of the American Revolution. The tax on the tea was a penny, while the average wage in New England was between one and two shillings per day. After the Boston tea party, Britain decided to close down the Boston Harbor until the tea was further paid for, as provided in the Boston Port Act, first of the so-called Intolerable Acts passed by Parliament in response to the Boston Tea Party.
The Act was repealed by the Taxation of Colonies Act 1778.