The term indirect tax
has more than one meaning.
In the colloquial sense, an indirect tax (such as sales tax
, a specific tax , value added tax
(VAT), or goods and services tax
(GST)) is a tax
collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax proceeds to government
with the return. In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is imposed. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be."Britannica Online
, Article on . See also Financial Dictionary Online
, Article on .
An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products.Financial Dictionary Online
, Article on . Examples would be fuel, liquor, and cigarette taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately the manufacturer transfers the burden of this duty to the buyer of the car in form of a higher price. Thus, an indirect tax is such which can be shifted or passed on. The degree to which the burden of a tax is shifted determines whether a tax is primarily direct or primarily... Read More