Question

Many critics have argued that a sales or consumption tax should be eliminated because of its regressive nature. what is the basis of this argument?

Answer 1

Because percentage of income use for consumption tends to fall/reduced as income of that person rises.

For examples, let's say that Person A earn $10 a year and person B earn $ 100 year. When both person A and person B decided to buy a bread, both would be subjected to a consumption tax of $ 1.

Many experts say this as regressive because the impact of consumption tax actually would be harsher for people in lower income. From the example above the consumption tax took 10% of the person A's income while it only take 1% of person B's income.

Answer 2

The basis for this argument is that consumption tax takes a larger percentage of income from low income earners than from high income earners. This is because consumption tax is uniformly applied to all people irrespective of their situation.<span />