Indirect tax

indirect tax

The term indirect tax has more than one meaning.

In the colloquial sense, an indirect tax (such as sales 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 customer). 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.


The term indirect tax has a different meaning for U.S. constitutional law purposes. See Direct tax; see also Excise. In addition, the U.S. Government deems VAT to be a direct tax for purposes of the Vienna Convention on Diplomatic Privileges and Immunities, as it does the London Congestion Charge. The U.S. Department of State's Office of Foreign Missions operates a reciprocity policy in the matter of sales tax exemption. Another important definitional conflict has simmered at the World Trade Organization in the context of the granting of export tax rebates by the United States (FSC and DISC corporations).

In the early years of the United States, there was strong opposition to the federal government levying direct taxes. As a result, the government resorted to tariffs, an indirect tax.

Another definition of an indirect tax is a tax that is initially paid by one individual but the burden of which is passed over to some other individual who ultimately bears that burden.[citation needed] For example: 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.

Taxes

What is tax?

A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (for example, secessionist movements or revolutionary movements). Taxes could also be imposed by a subnational entity. Taxes consist of direct tax or indirect tax, and may be paid in money or as unpaid labour

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