What Is an Indirect Tax?

An indirect tax is a form of taxation where the tax is collected by an intermediary, such as a manu🍸facturer or retailer, and then passed onto the consumer through the price of a good or service. While the entity collects the tax, the consumer ultimately bears the cost by paying a higher price.

How an Indirect Tax Works

Indirect taxes differ from direct taxes in that the individual or entity legally liable to pay the tax isn’t the one who bears the burden. Instead, the tax is transferred to the consumer. For example, while a manufacturer may be responsible for paying excise duties on fuel, liquor, or cigarettes, these costs are typically passed on to the consumer as part of the product’s price.

By contrast, 澳洲幸运5官方开奖结果体彩网:income tax is the clearest example of a direct t🍒ax, since the person earning the income is the one directly paying the tax. Admission fees to a national park are another example of direct taxation.

Regressive Nature of an Indirect Tax

Indirect taxes are commonly used and imposed by the government to generate revenue. They are essentially fees that are levied equally upon 澳洲幸运5官方开奖结果体彩网:taxpayers, no matter your income—so, rich or poไor, everyone has to pay them.

Many consider them to be 澳洲幸运5官方开奖结果体彩网:regressive taxes, as they can bear a heavy burden on people with lower incomes who end up paying the same amount of tax as those who make a higher income.

For example, the import duty on a television from Japan will be the same amount, no matter the income of the consumer purchasing the television. And because this levy has nothinജg to do with a person’s income, someone who earns $35,000 a year will have to pay the same duty on the same television as someone who earns $150,000.

There are also concerns that indirect taxes can be used to fu🔯rther a particular government policy by tax▨ing certain industries and not others.

Common Indirect Taxes

The most common example of an indirect tax is import duties. The importer of a good pays the duty at the time it enters the country. If the importer goes on to resell the good to a consumer, the cost of the duty, in effect, is included in the price that the consumer pays. The consumer will likely be unaware of this, but they will indirectly pay the import duty.

Essentially, any taxes or fees imposed by the government at the manufacturing or production level is an indirect tax. In recent years, many countries have imposed fees on carbon emissions to manufacturers. These are indirect taxes since their costs are passed along to consumers.

澳洲幸运5官方开奖结果体彩网:Sales taxes can be direct or indirect. If they are imposed only on the final supply to a consumer, they are direct. If they are imposed as value-added taxes (VATs) along the production process, they are indirect.

The Bottom Line

Indirect taxes are a widespread method of taxation on goods and services. While they are typically not paid directly by the consumer to the government, the cost of these taxes is ultimately passed on to the consumer through higher prices. These taxes, such as sales and import duties, tend to be regressive and impact individuals regardless of their income level, often raising concerns about their fairness and mark🌊et impact.