Consumption tax

Consumption taxes are indirect taxes levied on consumption spending on goods and services. Sales tax, VAT, and GST are different types of consumption taxes.

The taxable base of such a tax is the money spent on consumption.

The tax amount is usually ad valorem, that is, it is calculated by applying a percentage rate to the taxable base.

Consumption taxes are usually indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax (namely the seller rather than the consumer).

To avoid double taxation on final consumption, exports (which by definition are consumed abroad) are usually not subject to such a tax.


The value-added tax (VAT) applies to the market value added to a product or material at each stage of its manufacture or distribution.

For example, if a retailer buys a shirt for twenty dollars and sells it for thirty dollars, this tax would apply to the ten dollar difference between the two amounts.

The value added tax is levied each and every time the value of a good gets increased in the process of manufacturing to the point of sale.

In Australia, Canada, New Zealand, India, and Singapore, this tax is instead called a Goods and Services Tax (GST).

In Canada it is also called Harmonized Sales Tax (HST) when it is combined with a provincial sales tax.

🔎 Check out our Youtube playlist about VAT and GST to know more!

Sales tax

Sales tax is a consumption tax applicable to sales of goods & services in some US states.

The sales tax by the retailer and further remitted to the government. When a sales tax is paid to the government directly by a consumer, it is usually called a use tax.

A sales tax typically applies to the sale of goods, and sometimes also to the sales of services.

Unlike VAT, sales tax is applied only at the point of sale.

🔎 Check out our Youtube playlist about Sales tax to know more, or read our blog post!

Use tax

A use tax is a type of tax levied in the United States by numerous state governments.

It is essentially the same as a Sales Tax but is applied not where a product or service was sold but where a merchant bought a product or service and then converted it for its own use, without having paid tax when it was initially purchased.

Use taxes are functionally equivalent to sales taxes. They are typically levied upon the use, storage, enjoyment, or other consumption in the state if no sales tax applied on the sale.

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