The term indirect tax has more than one meaning.
In the colloquial sense, an indirect tax (such as sales tax A sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax is usually set as a percentage by the government charging the tax. There is usually a list of exemptions. The tax can be included in the price or added at the point of sale (tax-exclusive), value added tax Value added tax , or goods and services tax (GST) is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on (VAT), or goods and services tax (GST)) is a tax To tax is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state 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 A government is the body within an organization that has the authority to make and enforce rules, laws and regulations, control and direct the actions or behavior of the individuals within the organization and deal with everyday administrative issues 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."[1]
An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products.[2] 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.
In addition, the U.S. Government deems VAT Value added tax , or goods and services tax (GST) is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on to be a direct tax for purposes of the Vienna Convention on Diplomatic Relations The Vienna Conventions on Diplomatic Relations is an international treaty on diplomatic intercourse and the privileges and immunities of a diplomatic mission. Adopted on April 18, 1961 by the United Nations Conference on Diplomatic Intercourse and Immunities held in Vienna, Austria, from March 2 to April 14, as it does the London Congestion Charge so diplomats are exempt. 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.
The term indirect tax has a different meaning for U.S. constitutional law purposes. See Direct tax The term direct tax has more than one meaning: a colloquial meaning and, in the United States, a constitutional law meaning. Certain taxes may be direct taxes in the colloquial sense but indirect taxes in the constitutional sense; see also Excise An excise or excise tax is a type of tax charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of a good.
In Australia, indirect taxes are imposed at Commonwealth, State and Local Government levels. The major Commonwealth indirect taxes are Goods and Services Tax, and Customs Duties and Excise, including Fuel Tax. At the State level, the major indirect taxes include Stamp Duties, Payroll Tax and Land Tax, all imposed at differing levels across the States and Territories.
Notes
- ^ Britannica Online, Article on Taxation. See also Financial Dictionary Online, Article on Direct taxes.
- ^ Financial Dictionary Online, Article on Indirect taxes.
- Indirect tax consists of Specific tax and Ad valorem tax
- Specific tax is the fixed amount of tax per unit of the product ( £4.03 per brand of cigarette)
- Ad valorem tax is the tax calculated by the percentage of the value of the product i.e. VAT
See also
- Direct tax The term direct tax has more than one meaning: a colloquial meaning and, in the United States, a constitutional law meaning. Certain taxes may be direct taxes in the colloquial sense but indirect taxes in the constitutional sense
- United Kingdom Corporation Tax Corporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the EU. Prior to the tax's enactment on 1 April 1965, companies and individuals paid the same income tax, with an additional profits tax levied on
- Income tax in the United States The federal government of the United States imposes a progressive tax on the taxable income of individuals, partnerships, companies, corporations, trusts, decedents' estates, and certain bankruptcy estates. Some state and municipal governments also impose income taxes. The first Federal income tax was imposed during the Civil War, then again in
- Value Added Tax Value added tax , or goods and services tax (GST) is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on
- VAT in the UK
Categories: Taxation Categories: Government finances | Public economics | Political economy | Accountancy
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