Definition of Consumption Tax





What is a "consumption tax"? What is the definition of the term "consumption tax"?

A "consumption tax" is when you are taxed based on what you spend, rather than on what you earn (which is an income tax).

Example of consumption taxes include VAT (Valued Added Tax), HST (Harmonized Sales Tax), and other types of sales taxes, as well as tobacco taxes, soda taxes, gasoline taxes and other types of excise taxes.

Definition of Consumption Tax - Financial DictionaryThese taxes all have something in common - they are applied to expenditures, rather than taken directly from your income. The more you spend, the more you will pay in consumption taxes, and vice versa.

Most countries throughout the world utilize both income and consumption taxes.

Consumption taxes are very unpopular (what tax isn't), but they provide their governments with an endless stream of fairly consistent revenues. For instance, revenues from tobacco taxes don't fluctuate very much, even in times of economic distress, due to the fact that cigarettes are addictive and many people will just not go without, regardless of how much they are struggling.




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