Sales Tax

Sales Tax

Sales Tax, a tax levied at a uniform rate on all products and collected at the point of retail sale. It is contrasted with the British purchase tax, which is levied only on some goods at varying rates and is collected at the wholesale stage. The purchase tax is administratively convenient; the number of tax collection points is minimized, and variation in rates and the goods chosen for tax can be used to encourage or discourage consumption of particular goods. On the other hand a selective tax of this kind distorts consumers' preferred patterns of expenditure and may make some lines of production less competitive than they otherwise would be. Changes in the rates of tax may also disrupt production planning and produce arbitrary gains or losses on retailers' stocks. A general retail sales tax would not suffer these defects to the same degree. It would also permit the taxation of services. For these reasons it has often been suggested as an alter-native to the British system of purchase tax and excise duties. The main arguments that have been used against its adoption are that selective taxation may be desirable on grounds of equity and that a retail sales tax would increase the costs and administrative difficulties of collection.

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