consumption tax

Dictionary of Accounting Terms for: consumption tax
consumption tax

levy charged directly on a specified item or commodity. It may be viewed as an indirect form of taxation in that it is not contingent upon income but on consumption of an item. Examples include excise taxes on cigarettes nd alcohol, and sales taxes.

Dictionary of Finance and Investment Terms for: consumption tax
consumption tax

a tax on what people spend instead of what they earn, such as a sales tax, a Value-Added Tax (VAT), or a consumption tax system that, similar to an Individual Retirement Account (IRA), excludes from taxation all income that is saved, then taxes withdrawals from savings. Advocates of a consumption tax as a replacement for the income tax favor the consumption tax system approach, arguing that the gains from additional saving and investment would offset the higher tax rate necessitated by the removal of saved income from the tax base.

Copyright (c) by Barron's Educational Series. Reprinted by arrangement with the publisher of this site.