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What Is Luxury Tax?

Products and services are normally taxed by the government. Not all items are taxed at the same rate, however. Goods and services that are not deemed necessary for basic survival - that is, luxury goods - are taxed on top of other applicable taxes.

A luxury tax can be applied in different ways. One common way it is applied is by following what is done for sales tax, or value-added tax (VAT); that is, a percentage of the value of the luxury item is charged as the luxury tax. Another way to apply a luxury tax is only when a purchase goes beyond a certain amount, which is astronomical for the average person.

Items that are slapped with luxury tax may, at some point, be exempt from this expense. This usually happens when luxury items suddenly experience a severe drop in value. In this case, they somehow do not get considered as luxury goods anymore, resulting in the waiving of the luxury tax.

While the amounts involved when paying luxury tax are very very high, we do not hear much noise about it as the average person will not have to face this issue anyway. As such, luxury tax does not much have impact on society - as of the moment. The people who have to deal with luxury tax are those who can afford it in any case. That is not to say that, with the passing of time, the definition of luxury might shift, affecting the way luxury tax is applied.

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