Expenditure Tax is a form of taxation imposed on the total spending or consumption of individuals rather than on their income. Unlike an income tax, which taxes what a person earns, expenditure tax targets what a person spends, making it a measure of consumption-based taxation. The idea behind this system is to encourage savings and investments while taxing individuals based on their lifestyle and expenditure levels.

In India, the Expenditure Tax Act, 1987 was introduced to levy tax on certain types of expenditure, primarily on luxury consumption. Under this act, expenditure incurred in hotels or restaurants above specified limits was subject to taxation. The objective was to generate additional revenue and promote equitable taxation by ensuring that individuals who spend more contribute more to the economy. However, this act was eventually repealed as it overlapped with other indirect tax mechanisms like the Service Tax and later the Goods and Services Tax (GST).

Globally, expenditure-based taxation systems are often viewed as alternatives to income taxation. Countries or policymakers that support such systems argue that they can reduce tax evasion since consumption is easier to track through spending records. Moreover, they promote savings because income is taxed only when it is spent, not when it is earned.

However, a drawback of the expenditure tax system is its potential to disproportionately affect lower-income individuals, who typically spend a higher proportion of their income on basic needs. To address this, exemptions or lower rates can be applied to essential goods and services.

In summary, Expenditure Tax is a consumption-oriented tax system designed to tax individuals based on their spending patterns. While it promotes savings and simplicity in theory, practical implementation often requires balancing efficiency, equity, and administrative feasibility.