Consumption Tax
A consumption tax is a tax levied on the purchase of goods and services. Instead of taxing income, it taxes how much you spend. When you buy something, a percentage is added to the price, which goes to the government. Common examples include sales tax and value-added tax (VAT). This type of tax is designed to generate revenue for public services and can be seen as a way to encourage saving; since only spending is taxed, people are incentivized to save more of their income. However, it can disproportionately affect low-income individuals who spend a larger share of their income.
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A consumption tax is a type of tax levied on the purchase of goods and services. It is typically added at the point of sale, meaning consumers pay it when they buy something, rather than on income or savings. This tax can take various forms, such as sales tax or value-added tax (VAT). The idea is that everyone pays tax based on what they spend, which can encourage saving rather than spending. Consumption taxes can raise revenue for governments, but they may disproportionately affect lower-income individuals, as they spend a larger share of their income on essentials.