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Luxury Tax and Sin Taxes

A luxury tax is considered a tax on non-essential or superfluous goods. A luxury tax may be modeled after a sales tax, a Value Added Tax (VAT), or other. It is considered a luxury tax as it mainly affects the wealthy as are the most likely to buy the category of goods with these taxes. Examples may include expensive cars, jewelry, etc and in some case it may also be applied only to purchases over a certain amount.

In Canada there are few direct examples of luxury taxes. In British Columbia, the province has been collecting a surtax on luxury vehicles: if a vehicle costs over $57,000, the provincial government charges an extra three per cent tax. The Canadian media has also reported that the Liberal government is considering a luxury tax on multi-million dollar homes, a temporary means of cooling the red-hot housing markets in Vancouver and Toronto.

In contrast, a sin tax is levied on specific products deemed harmful to society (like alcohol products, including wine, beer, and spirits, as well as cigarettes and tobacco products, as well as gambling). Sin taxes are typically applied in an effort to control or reduce the use and consumption of these products, as well as to increase government tax revenues by identifying new sources of revenue. The rationale for these taxes is simple: increasing a sin tax on these "harmful" products is often more popular to citizens than increasing other taxes, such as sales or income taxes. With the anticipated legalization of marijuana in Canada in the future, citizens can expect this product to be excessively taxed as a new form of sin tax on consumers. The same could be expected if prostitution were legalized and taxed in Canada.


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