Question

Due to higher prices, an inflation would increase the consumption in absolute amount, which results in higher consumption tax. What do you think about this? Do you agree?

Answer 1

Consumption tax is a tax levied on consumption spending on goods and services and it is also an indirect tax.the main reason is that low and middle income household consume more of their income than high income household do.Another way of saying that is high income household save more of their income than low income household do.Impact of consumption tax: (i) the balance of the pace of income growth and the burden in different economic phases and (ii) the degree to which the household sector assents to a tax increase. For this reason, if the tax rate is to be increased, it will be important (i) to establish a framework that is able, to some extent, to respond flexibly to current economic conditions and (ii) to implement the increase gradually and avoid major fluctuation in demand. If taxation is to be increased, it is also essential that the government (i) lay the foundations for the restoration of soundness to public finances with a thorough restructuring of expenditure and (ii) set about restoring confidence in the social security system through reforms that will ensure its sustainability.