Consumption Tax
A tax on spending on goods and services rather than on income.
A consumption tax is levied on the purchase of goods and services rather than on income or wealth. VAT, GST, sales tax, and excise duties are all forms of consumption tax. Economists often favor consumption taxes for being relatively efficient and harder to avoid, though critics note they can be regressive because lower-income households spend a larger share of their income. Most countries rely on consumption taxes for a significant portion of government revenue.
Examples
- VAT and GST are the most common broad-based consumption taxes worldwide.
- Excise duties on fuel, alcohol, and tobacco are targeted consumption taxes.