Indirect Tax

Posted in Finance, Accounting and Economics Terms, Total Reads: 420
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Definition: Indirect Tax

It is a tax collected by an intermediary from the consumer who bears the burden of the tax. This intermediary then files a tax return and forwards the tax thus collected ti the state. As against the direct tax which is collected by the government from the person directly, indirect tax in levied on expenditure, consumption, right or privilege instead of property or income.


The impact of indirect tax is that it increases the price of a product. The burden of indirect tax can be passed on as a function of the elasticity of demand and supply of the good/service being taxed. The taxpayer, the intermediary who pays the tax doesn’t bear the burden – the burden ultimately falls on the consumer. It is a broad based taxed as all members of the society, rich or poor are eligible to be taxed. As it is not varying with income, at times indirect tax maybe regressive i.e. it imposes more burden on the poor than the rich. Indirect taxation as a policy is used to generate tax revenue as it doesn’t show up on the salary slips; the state is tempted to increase it. Some examples of indirect tax are the excise duties, sales tax, VAT, GST etc.

 

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