Two Different Rates on Value Added Tax

Tax on value added is a kind of indirect tax which yields high income for governments. Thus، governments intend to increase it. However، raising tax rate uniformly across all goods consumed by different income groups have been criticized for being regressive and unjust. In this paper، we have used two different tax rates to distinguish luxury goods from other essential goods. Taking Justice and equity into account while levying taxes، this study shows that optimum tax rates on essential goods such as food and non-essential luxury goods are estimated to be 8 percent and 26 percent respectively. This finding، however، does not mean that tax authority should change the tax structure immediately disregarding its impacts، and tension it may create، but rather it proposes a gradual and planned system of taxes، taking precautionary measures.