Indirect Tax

Indirect Tax

Indirect Tax, a tax on goods and services collected indirectly through traders importers, manufacturers or wholesalers. Indirect taxes may be divided into (a) revenue taxes excise duties, some customs duties, purchase tax, (b) protective duties the remainder of customs duties.

Their ultimate incidence depends upon the degree to which the immediate payers can 'shift' the burden of tax by raising prices on products to final consumers or lowering the prices paid for productive services which they hire. Unless the goods taxed are those whose consumption expands in step with income, indirect taxes tend to be regressive, i.e. to fall with most weight on people with the smallest incomes. Selectively imposed indirect taxes and periodic alterations in individual rates also affect the pattern of consumption and production; hence the argument for a general, non-selective sales tax imposed at a uniform rate.

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