Definition of Indirect Tax

Indirect Tax – A tax collected by an intermediary (such as a supplier) from the economic agent who bears the formal incidence of the tax (such as the customer). Tax levied on goods or services for example value-added tax (VAT) or excise duties on alcohol and tobacco are seen as indirect. These taxes are indirect because the tax payment to the revenue service is made by the firm selling the good but the tax is charged to the consumer. The extent to which the tax burden is shared between the supplier and the customer depends on the elasticity of supply and demand.

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