Progressive Consumption Tax Act

Progressive Consumption Tax Act
Congress of Arbolada
The Progressive and Equitable Consumption-Based Tax Act
Territorial extent	Arbolada
Enacted by	The Congress of Arbolada
Date enacted	May 11, 2023
Signed by	President Naomi Suzuki
Date commenced	May 12, 2023
Legislative history
Bill	Tax Equitable Reformation Act of 2023
Bill published on	April 10, 2023
Introduced by	Gonçalo Macedo (PP)
First reading	April 20, 2023
Second reading	April 29, 2023
Third reading	May 11, 2023
Summary
Restructure of the Arboladan tax system; institution of a consumption-based tax; repeal of all other tax forms
Status: Current legislation

The Progressive Consumption Tax Act (Luzulese: Lei do Imposto Progressivo sobre o Consumo), formally known as the Progressive and Equitable Consumption-Based Tax Act (Luzulese: Lei tributária progressiva e equitativa baseada no consumo) and coloquially known as the Suzuki Tax Act, is a national Arboladan law proposed by senator Gonçalo Macedo of the Prosperity Party of Arbolada, enacted by the Congress of Arbolada, and signed into law by President Naomi Suzuki on May 11, 2023. It represents a total reformation of the tax system of the Free Republic of Arbolada, seeking to both provide financial relief for the lower class while also providing opportunities for growth in the corporate sector via a consumption tax system on retail goods and services. In doing so, it has repealed prior tax laws of Arbolada, which were previously contingent upon income taxes (including corporate income taxes and capital gains taxes), payroll taxes, property taxes, gift taxes, and estate taxes.

The act defines consumption taxes based on three new categories of retail goods: essential, preferred, and luxury, with a default tax rate of 15%, 25%, and 40%, respectively. Essential goods are defined by the law as necessary items for basic survival, such as food, water, clothing, and basic real estate, and are subject to a 15% tax rate. Preferred goods, which are defined as "not strictly necessary for survival but still important to people's quality of life", such as private healthcare and education services in addition to transportation items and services, are taxed at a rate of 25%. Luxury goods, which are not necessary for survival or a good quality of life but are desirable to the upper class, are subject to a 40% tax rate.

The aim of this tax plan is to tax people based on what goods and services they consume, with the goal of levying a proper tax upon the wealthy who consume more luxury than essential goods. To ensure that the tax is not regressive, certain essential goods may be exempt from the tax altogether, or apply a reduced tax rate to them. The tax plan also includes a rebate and credit system to help lower-income individuals offset the cost of the tax.

Through this law, the Arboladan Tax Ratings Service has been established from the prior Tax Collections Service to catalogue and assign tax values to all possible goods and services offered within the country, in addition to enforcing these measures.

Tax rate

The consumption-based tax plan is a taxation system that aims to tax individuals and corporate entities only based on what they consume. To achieve this, retail goods are categorized into "essential," "preferred," and "luxury" items by the Arboladan government. Essential goods are items that are necessary for basic survival of individuals: namely food, water, clothing, and basic real estate. Preferred goods are items that are not strictly necessary for survival but are still important to people's quality of life, such as healthcare, education, and transportation. Luxury goods are items that are not necessary for survival or a good quality of life but are desirable, such as luxury vehicles and real estate, jewelry, and other premium retail goods or services.

The tax rates for each category are structured as follows: 15% for essential goods, 25% for preferred goods, and 40% for luxury goods. The amount of tax owed is calculated by multiplying the purchase price of each item by its corresponding tax rate. For example, if someone purchased $100 worth of essential goods, they would pay $15 in taxes (15% of $100). If they purchased $100 worth of luxury goods, they would pay $40 in taxes (40% of $100).

To ensure that the tax is not ultimately regressive and does not disproportionately affect low-income earners, certain essential goods are exempt from the tax altogether, or a reduced tax rate could be applied to them. Basic food and beverage items like water, rice, beans, and vegetables are exempted from the tax, and basic medical items are often associated with a lower tax rate of 5%.

A rebate or credit system has also been implemented to help lower-income individuals offset the cost of the tax. This is done by providing a tax credit to individuals who earn below a certain income threshold, or alternatively by issuing a rebate to those who pay more in taxes than they ultimately earn in income.

Government service exemptions

Certain government services have received consumption tax reductions or exemptions based on their essentiality to the public. For example, public primary and secondary schooling has no tax consumption, nor services covered by Standard Healthcare Insurance as disseminated by the National Health Agency. Public transportation has only a tax rate of 5%. The rebate and credit system has been factored into the issuance of food stamps for those who qualify for select essential goods and services, reducing their tax to zero or having significant reduction.

Private entity effect

The consumption-based tax plan has seen significant implications for corporate entities. The tax plan applies to all goods and services, with the exception of those considered to be capital goods. Under this tax plan, businesses may normally face increased costs due to the higher tax rates on luxury and preferred goods and services purchased by such entities. The higher tax rates may also impact consumer demand for these goods, which could affect the overall profitability of businesses that produce and sell them.

However, exempting or applying reduced tax rates to certain essential goods can benefit businesses that produce and sell these items. Additionally, the tax credit or rebate system can help offset the cost of the tax for lower-income consumers, which can maintain demand for essential goods and benefit businesses that produce and sell them.

Since capital goods are exempted or subject to reduced tax rates, businesses are incentivized to invest in these assets, which can benefit their production processes and overall profitability.