Direct Tax and Indirect Tax
Taxes can be categorized as either direct or indirect. Heres a concise explanation of each:
Direct Tax
- A direct tax is paid directly to the government by the taxpayer and cannot be shifted to any other person or group.
- Examples of direct taxes include income tax, property tax, and capital gains tax.
- Direct taxes are imposed on individuals and organizations and cannot be passed on to others.
Indirect Tax
- An indirect tax is one that can be passed on or shifted to another person or group by the person or business that owes it.
- Examples of indirect taxes include sales tax, excise tax, and value-added tax (VAT) .
- Businesses may recover the cost of indirect taxes by charging higher prices to customers, paying lower wages, or accepting lower profits.
In summary, direct taxes are paid directly to the government by the taxpayer and cannot be shifted, while indirect taxes can be passed on to others by the entity that owes the tax.
