Taxonomy of Taxes on Consumption

OF course, we are familiar with the term value-added tax (VAT). VAT is a type of tax on consumption that is applied in Indonesia. The term VAT was first introduced in Indonesia through the issuance of Law no. 8 of 1983.

In some countries, the term VAT is also known as the goods and service tax (GST). Although the terms are different, basically there is no difference in concept between VAT and GST. Therefore, they both refer to the same type of tax. Also, see the article ‘ Is VAT and GST Different ?’

Apart from VAT/GST, there are other types of consumption-based taxes, such as sales tax and excise tax. Although different in characteristics, in essence, the two types of taxes are part of the tax

So, what is the classification or taxonomy of the consumption tax?

To understand further, we can look at the classification or taxonomy of consumption taxes based on the OECD report entitled Consumption Tax Trends 2020: VAT/GST and Excise Rates, Trends, and Policy Issues .

Referring to the OECD tax classification on consumption, there are 2 categories of taxes on consumption, namely taxes on general consumption ( taxes on general consumption ) and taxes on specific consumption ( taxes on specific consumption ).

This general consumption tax category is further classified into 3 types of taxes, namely VAT ( VAT ), sales tax ( sales tax ), and other general taxes on goods and services ( other general taxes on goods and services ).

Specific types of consumption taxes consist of excise ( excise ), import duties ( import duties ), and other specific taxes on goods and services ( other specific taxes on goods and services ).

Based on this classification, it can be seen that VAT and sales tax are taxes levied on all consumption of general taxable goods or services.

Regarding taxes on general consumption, there is no difference between the consumption of goods and services. The word general or general is what distinguishes it from other types of consumption taxes which are only imposed on goods and services of a specific nature, such as excise (in Indonesia it is called excise) and import duties ( Darussalam, Septriadi, and Dhora, 2018 ).

It also shows that the OECD does not see VAT and GST as different types of taxes. Both are considered as a type of tax on goods and services of a general nature.

In addition, in practice, consumption taxes such as VAT, sales tax, and excise are also often categorized as indirect taxes because they are generally not levied directly on the person who should bear the burden of the tax. This type of consumption tax is imposed on certain transactions, products, or events (OECD Glossary).

It should also be understood that this consumption tax is also not imposed on income or wealth but on expenses financed by that income and wealth.

Therefore, governments in many countries generally collect taxes on consumption from producers and distributors at various points in the business chain. However, the tax burden still falls on consumers. This is assuming the tax will be charged to the consumer at the price charged by the supplier.

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