Text Padding in Select Boxes
Unfortunately, this extra whitespace is added by the browser's rendering engine. Form element rendering is inconsistent across browsers, and in this case is not determined by CSS.
Take a look at this article from Mozilla explaining some ways to mitigate select box incosistency, then you might read this article from Smashing Magazine about styling form elements (be sure to check out the comments and the problems people have had with selects).
Edit 2020: I stumbled across this article from Chris Coyer at CSS-Tricks that appears to show some styling that you can apply to select elements that may help some folks out. It appears overriding the browser's default styling allows you a little more freedom than I was aware of when I posted this answer several years go, according to Liliana Brissos on Team Treehouse.
Is there any way to add padding to select options via CSS?
Styling to select option is very much limited as to maintain a coherence and consistency among all the application in the operating system thus the browser are ought to restrict the style of some basic elements like in your case option tag.
The restriction depends browser to browser, like padding and even margin of option tag works in the Mozilla Firefox while it doesn't work with Chrome.
If it is very much necessary in you website to style the option tag then I suggest you to use some jQuery plugin (you can also make a drop down of your own, its simple).
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