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Luxury Tax – BOOM or BANEFUL

luxury taxes

Poverty is not the natural phenomenon, but the result of man-made policies and institutions. Therefore the solution of the most burning problem must also be sought in social, economic and political policies and institutions.

luxury tax is a tax on luxury goodsautomobile, yacht, wine, bottled watercoffeetea, foodswatchesclothesjewelryfeminine hygiene products,etc.)Which are not considered essential. A luxury tax may be modeled after a sales tax or VAT, charged as a percentage on all goods of particular classes, apart from that it mainly affects the prosperous one because the wealthy are the most likely to purchase luxuries such as pricey cars, jewelry, etc. It may also be applied only to purchase over a certain amount; for instance, some U.S. states indict luxury tax on real estate transactions over a limit.

A luxury good may be a Veblen good, which is a type of item for which demand increases as price hikes. Consequently, the effect of a luxury tax may be to boost demand for certain luxury goods. In general, however, since a luxury item have a high-income elasticity of demand by description, both the income effect and substitution effect will lessen demand sharply as the tax rises.

Luxury Tax Rates


The luxury tax is summoning on the turnover of revenue of a hotelier at the notified rate, not more 15%.  The Govt. may quote different rate(s) from time to time and for the various classes of hotels. At present the price of Luxury Tax is on the room duty of Rs.750/- and above but less than Rs.1000/- and 10% on room tariff and above on per room on per night basis on residential accommodation given by way of business in a hotel a quarters house, an in a club, a resort, farmhouse, a public house or a building or part of building. In the case of assistance provided in the Banquet Hall, workout Health Clubs and Spas, the rate of tax is 3% Services only.

The rate of luxury taxes is different all over the world.In fact it differs within the country.

  1. Like in India, different states have different luxury rates advised by there respective authorities.
  2. In Goa, rooms equal or below INR 500 per night are exempted of luxury tax on the other hand In Karnataka, room rents within INR 500 INR per night are charged 4% as luxury tax. In Tamil Nadu, room rents of INR 200 to INR 500 get charged a luxury tax of 5% per annum.
  • Luxury tax in China has long been a source of significant revenues for the Chinese government, as anyone who has been able to evaluate the prices in China for luxury items to those in Hong Kong, for example, will be well aware.
  1. Yet the amount of money generated by China’s taxing such items is staggering. As per the HSBC’s China Luxury Tax Report, the country raised RMB1.2 trillion – US$187.9 billion – in luxury taxes in 2010, an amount so large that it constitute 78 percent of all the central government’s spending.
  2. The term “luxury tax” is actually a combined of different taxes, being made up of import duties, VAT and consumption tax. These rates differs from product to product, but for items such as high-end cosmetics these prices equate to a respective 30 percent, 17 percent and 10 percent. This is very high when compared to other countries.
  3. A result has been that Chinese consumers have trended towards buying such products overseas – some 80 percent of what could be termed luxury items are now purchased abroad. Or, to put it other way, Chinese consumers pay out four times as much overseas in luxury items than they do at home. This has resulted in the calls for a reduction in luxury taxes as it has the resulted in pushing buyers out of China.
  • In Egypt, Certain essential or luxury items are subject to lower resp. higher rate. 13% standard rate till June 2017. Rate will change to 14% effective July 1, 2017
  • Luxury Tax was considered to be of immense importance by the American government.




Luxury taxes were often made mandatory during times of war to raise government revenues, or as a way to dig up extra tax revenue from the ultra-wealthy. Even though few citizens are disappointed regarding the conservation of luxury taxes now a days, the vast mass of public and lawmakers don’t mind charging extra fees for the use of these ancillary-type goods used by a minority of the population.

There is much argue over whether imposing luxury taxes does more damage than good. For example, who is most effected by a extra tax placed on an expensive automobiles – the buyer, who most likely has capital to spare, or the middle-class man who makes the car only to see sale falling when the luxury tax curbs demand? In the late 1980s, Canada imposed a large lavishness tax on cigarettes, only to find that a substantial and violent black market soon formed to supply smokers. Legal sales (and tax revenues) decreased, while more capital had to be re-routed to stop the criminal activity.

In the early part of the 1990s, a 10% Luxury Tax was levied on fur, expensive jewelleries, aircrafts and car purchasing worth $30,000 and above. This resulted in a sharp decline in their purchases, causing chaos among the producers of the items and the retail traders dealing with them. At one point of time, the situation became so severe that Luxury Tax had to be annulled, and was replaced by the 1993 Revenue Reconciliation Act.




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