Cascading Effect
Definition
Cascading Effect — Meaning, Definition & Full Explanation
The cascading effect, particularly in taxation, refers to the phenomenon where a tax is levied on an amount that already includes a previous tax. This "tax-on-tax" situation arises when taxes paid at an earlier stage of a supply chain cannot be offset or credited against taxes due at a subsequent stage. Consequently, the final price of goods and services inflates significantly, increasing the burden on the end consumer.
What is Cascading Effect?
The cascading effect describes a situation, most commonly observed in indirect taxation, where the burden of tax progressively increases through various stages of production and distribution. It occurs when a business pays tax on its inputs (raw materials, components, services) but is unable to claim a credit for these taxes when selling its output