An indirect tax 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). [1, 2, 3]
Key Characteristics
- Shifted Burden: The tax liability is passed from the manufacturer or service provider down to the final consumer.
- Embedded in Price: Consumers pay the tax automatically as part of the market price of goods or services.
- Regressive Nature: Everyone pays the same tax rate regardless of income, meaning it consumes a larger percentage of income from low-income earners than high-income earners. [4, 5, 6, 7, 8]
Major Examples
- Goods and Services Tax (GST): A comprehensive, multi-stage tax levied on the supply of goods and services.
- Customs Duty: A tax imposed on goods when they are transported across international borders (imports and exports).
- Excise Duty: A tax levied on the manufacture or production of specific goods within a country (e.g., petroleum and alcohol). [9, 10, 11, 12, 13]
Indirect Tax vs. Direct Tax
| Feature [14, 15, 16, 17, 18] | Indirect Tax | Direct Tax |
|---|---|---|
| Taxpayer | Paid by the consumer via a seller/provider | Paid directly by the individual or organization |
| Shifting | Burden can be shifted to someone else | Burden cannot be shifted |
| Examples | GST, Customs Duty, Excise Duty | Income Tax, Corporate Tax |
| Impact | Increases the prices of goods and services | Reduces the disposable income of taxpayers |
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[10] https://cleartax.in
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