Pros and Cons of Sales Tax

21 04 2011

There are a number of advantages of sales tax.

Simplicity:

Canada’s federal income tax is highly complex. Since people’s salaries vary, there are different rates at which these people are taxed. As a result, the taxpayers must keep detailed records at the end. However, the sales tax simplifies this process. Everyone has to pay the same price, which simplifies the process significantly. The citizens would not need to keep track of detailed records.

Fairness:

Canadians are taxed at different rates depending on how much they earn. For example, a person who earns $100,000 annually would pay significantly higher than would a person who earns $30,000. Sales tax would eliminate such unfairness. Everyone will pay the same tax depending on what and how much they consume.

Revenue:

Many people consume items, whether they are for survival or for luxury. Therefore, a reasonably high tax on each item would allow the government to gain a lot of profit. While tax on income seems like a lot, tax on each item does not seem like a great amount, so people will think that sales tax is better than income tax.

On the other hand, there are some disadvantages of sales tax.

Relatively high tax:

While most items would be taxed at a stable level, some items may be taxed at a higher price. For example, alcohol and cigarettes may be taxed at a higher price than other items to discourage the purchase.

Abuse of tax on industries:

Such tax policy may be used politically to undermine a particular industry or company. Most businesses have to overprice their goods to make profits. If the tax on the company’s goods is significantly higher than other companies’ goods, they would not survive in the competition.

Manufacturing cost:

Since the tax on each item would be relatively high, the manufacturing companies would also have to pay more money to purchase their raw materials, thus increasing their manufacturing costs.

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