Consumed Income Tax Law and Legal Definition

Consumed Income Tax is a kind of tax that is levied only against the part of income that is spent on goods and services. Sales tax or value added taxes are common examples of consumed income tax. Under a consumed income tax, all consumption would be taxed and all household savings would be tax deductible. Consumed income tax is imposed to encourage savings, provide funds for investment, and make the economy more productive by exempting the portion of income that is saved.