Paper Key : IRJ************498
Author: Nallapareddy Pavaneswar Reddy
Date Published: 03 Apr 2025
Abstract
Abstract: Consumer taxes (sales taxes, excise taxes, and value-added taxes, or VATs) are important sources of government revenue, but they have a material impact on household spending and individuals purchasing power, given that they are regressive, particularly for low- and middle-income consumers. While consumer taxes are generally considered neutral, their regressive effects on poorer people have sparked debates over their fairness. Until now, literature has focused on the economic impact of consumer taxation as a theoretical construct of pre-e-commerce, digital payment systems, and inflationary dynamics. Transition to electronic payments and online marketplaces have heightened the need for widening tax base, about tax collection and enforcement, and ways to capture consumer spend, pointing toward new paradigms of taxation, that reflect contemporary economic realities. Despite these important studies, few have explored how firms change price behavior in response to tax changes, and how these adjustments affect consumer spending behavior across the income distribution. This study aims to address such gaps in the literature by examining consumer responses to various tax designs and the efficacy of existing tax policy to promote economic equity. By exploring how inflation, digital commerce, and firm pricing behavior affect the burden of taxes, this study aims to examine whether current tax models support or challenge economic fairness. In addition, the study will offer new insight into tax reform efforts aimed at lowering fiscal burdens on economically disadvantaged consumers and increasing revenue generation efficiency. Policymakers need to be looking at different models of taxation that reduce the regressive effects of consumer taxation such as tiered taxation, exemptions to specific populations or low-income consumer credits, for instance. Beyond revenue and social equity, there is also need for an understanding of a comprehensive tax policy environment in an inflationary and digital economy, so that policies are made to platform just not ensure revenue and social justice. The study will undertake a diagnostic exercise of existing tax systems, followed by highlighting some of the policy reforms that can lead to a more progressive tax system. Finally, the study will be a bible for policymakers to formulate tax policies that ensure fiscal prudence without exerting unnecessary stress on the economically weaker strata of the society and taxation is a just and productive tool of economic management. Keywords: Consumer taxes, sales tax, value-added tax, regressive taxation, tax policy, purchasing power, tax burden, economic impact.