Consumption Tax


DEFINITION of 'Consumption Tax'

A tax on the purchase of a good or service. Consumption taxes can take the form of sales taxes, tariffs, excise and other taxes on consumed goods and services. The term can also refer to a taxing system as a whole where people are taxed based on how much they consume rather than how much they add to the economy (income tax).

BREAKING DOWN 'Consumption Tax'

The consumption tax is not a new idea. It was used by the U.S. government for much of our history before being replaced with an income tax. The Bush administration backed a version of this in 2003, although the proposal was defeated. Ideally, a properly designed consumption tax system would reward savers and penalize spenders.

  1. Conveyance Tax

    A tax imposed on the transfer of real property at the state or ...
  2. Taxes

    An involuntary fee levied on corporations or individuals that ...
  3. Income Tax

    A tax that governments impose on financial income generated by ...
  4. Excise Tax

    1. An indirect tax charged on the sale of a particular good. ...
  5. Sales Tax

    A tax imposed by the government at the point of sale on retail ...
  6. Duty Free

    Goods that international travelers can purchase without paying ...
Related Articles
  1. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  2. Taxes

    Tablets To 1040s: How Taxes Began

    Ever dream of a world without tax? It existed - 3,000 years ago.
  3. Taxes

    Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  4. Economics

    Explaining Fair Market Value

    Fair market value is the price at which a buyer and seller are willing to exchange a good.
  5. Taxes

    What IRS Form 1023 Is Used For

    To be treated as a tax-exempt organization, start by filling out this form.
  6. Taxes

    Late with Your Taxes? Grab IRS Form 4868

    Fill out this form to get a few more months to file your tax return. But remember, April 15 is still the payment due date if you owe taxes.
  7. Taxes

    What's a Tax Shield?

    A tax shield is a deduction, credit or other means used to reduce the amount of taxes an individual or business owes to the government.
  8. Taxes

    What's an Indirect Tax?

    An indirect tax is levied on goods or services rather than on an individual or a company.
  9. Taxes

    Understanding Excise Taxes

    An excise tax is an indirect levy charged for the sale or use of a particular item.
  10. Taxes

    Understanding the W-2 Form

    The W-2 Form is a standard Internal Revenue Service (IRS) form that employers are required to furnish employees at the end of each year.
  1. What is Value-Added Tax (VAT) and who pays it?

    Value-added tax (VAT) is a consumption tax, meaning that it is a tax on the purchase of a product or a service. It is a form ... Read Full Answer >>
  2. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Full Answer >>
  3. Do financial advisors prepare tax returns for clients?

    Financial advisors engage in a wide variety of financial areas, including tax return preparation and tax planning for their ... Read Full Answer >>
  4. What is the difference between comprehensive income and gross income?

    Comprehensive income and gross income are similar, but comprehensive income is a specific term used on a company's financial ... Read Full Answer >>
  5. What tax breaks are afforded to a qualifying widow?

    The tax breaks accorded to qualifying widows or widowers include being able to use a tax filing status that allows for a ... Read Full Answer >>
  6. How is income taxed on prorated salary?

    Since yearly income is viewed by the Internal Revenue Service (IRS) as the total amount of income a person has made over ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!