The Taxation Effect
Rethinking Consumption- The Taxation Effect
By Patrick Maninga
Taxation refers to an act of imposing financial obligations to citizens of a particular state or territory by an authority, government or state for a particular purpose say usage of a particular service / amenity or for day to day running of the economy or territory. Taxation has been in existence since ancient times.
Whilst taxation has been argued by many strategists, economists, and policy makers as the cornerstone for building the economies towards self-reliance, sustainability, growth and development, it has been met by opposing arguments that a state can never tax the masses to prosperity. Consumption can be defined as the usage or purchase of goods and services to satisfy a particular need and / or want. A nation can be termed as a consuming or a producing one.
Taxation has always had an impact on the consumption of goods and services in the economy. The state or government authorities use taxation as a measure to control consumption of certain goods and services and / or to direct consumers to a particular direction when it comes to usage of goods and services in the economy. Government can also control consumer demand deficit and surplus using taxation as a tool. Consumers have been able to react differently depending on the way a government imposes taxation either on consumption, distribution and even production of goods and services in the economy. Taxation and consumption are two related microeconomic parameters such that a change in taxation policy has
Whilst taxation has been argued by many strategists, economists, and policy makers as the cornerstone for building the economies towards self-reliance, sustainability, growth and development, it has been met by opposing arguments that a state can never tax the masses to prosperity. an impact on the consumption of goods and services in the economy.
In the present-day, increased imposition of taxes on consumer incomes and consumption of certain goods and services, lead to the following impacts to consumers:
Reduced Disposable Income
The introduction of levies and other taxes on consumers’ remunerations has reduced the household disposable incomes available to purchase goods and services for consumption. This has reduced consumer spendings on unnecessary products to focus on consumer needs and reduced the satisfaction of consumer wants in their day-to-day consumption. The underlying effect is reflected on consumer spendings since the income they would have spent is already deducted through taxations. What is left for the consumers is to continuously readjust their budgets subject to reduced available household incomes in pursuit of economic survival.
Reduced basket value
With increased taxation either on production, distribution or consumption, the prices in the market are increased for traders to breakeven and try to maximize their profitability which translates back to consumers who in the end feel market pressure associated with price increases. As the prices of goods and services increase in the economy, it leads to inflation which
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