Consumption tax can be classified into indirect tax levied on consumption. Indirect tax depending on whether the consumer is limited to certain taxable goods and services can also be divided into separate tax and general excise tax.
Consumption tax is levied on individual or group of specific goods, and the items subject to taxation are not uniform in a particular tax rate.
This taxation method applies classifications on different levels, and considers tax on the grounds of importance, items such as alcohol and tobacco products have deterrent taxes imposed on them (sin tax).
While, basic food related products are treated as essential, thus do not entail heavy taxation. The primary principle of consumption tax pertains to the power of deferral. Criticism levelled at sales and consumption taxes is based on the argument that the two tend to transfer the tax burden to the low income earners.
Consumption tax, a kind of indirect tax was invented by Maurice Laure of the French finance ministry. A mechanism that focuses on trade of goods and services arising in the Value-Added Tax, VAT, or GST (Goods and Services Tax, Excise Duty).
General consumption tax can be divided into value-added tax and consumption type VAT by the method of calculating income-type VAT. The former is calculated at the time of deduction of capital goods, suppliers are not allowed depreciation; the latter is fully deductible and for capital goods, only a fraction of taxable consumption.
General excise tax and individual tax are somewhat similar, the general excise tax is also an element of criticism, and is associated with the alternative tax, such as direct income tax and corporation tax .
The general consumption tax for luxury goods was once considered a form of excise tax imposed on individual goods. A number of economists and tax experts prefer consumption taxes as compared to income taxes for economic growth. Consumption taxes tend to be indifferent in relation to investment. Based on execution and existing conditions, income taxes can either promote or disfavor investment.
In the main, national tax systems are considered to discourage investment and the consumption tax could contribute to boosting the capital stock, productivity, and the economy.
General Consumption Tax (general expenditure tax) is the method proposed by British economist Nicholas Kaldor. Originally conceived as a tax to supplement the income tax by collecting taxes in the form of tax expenditure from income and capital gains, interest rates and savings.