Indirect Tax

Loading the player...

What is an 'Indirect Tax'

An indirect tax is a tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products. An indirect tax is most often thought of as a tax that is shifted from one taxpayer to another, by way of an increase in the price of the good. Fuel, liquor and cigarette taxes are all considered examples of indirect taxes, as many argue that the tax is actually paid by the end consumer, by way of a higher retail price.

BREAKING DOWN 'Indirect Tax'

Indirect taxes can also be defined as fees that are levied equally upon taxpayers, no matter their income. This is a primary reason why they are thought of as taxes that are passed on, as the price of the tax is compensated for by simply increasing the overall price of the good or service. Some economists argue that indirect taxes lead to an inefficient marketplace and alter market prices that don't match their equilibrium price.

RELATED TERMS
  1. Direct Tax

    A tax that is paid directly by an individual or organization ...
  2. Hidden Taxes

    Taxes that are indirectly assessed upon consumer goods without ...
  3. Tax Liability

    The total amount of tax that an entity is legally obligated to ...
  4. Effective Tax Rate

    The average rate at which an individual or corporation is taxed. ...
  5. Tax Base

    The assessed value of a set of assets, investments or income ...
  6. Proportional Tax

    A tax system that requires the same percentage of income from ...
Related Articles
  1. Personal Finance

    What's an Indirect Tax?

    An indirect tax is levied on goods or services rather than on an individual or a company.
  2. Personal Finance

    What is a Direct Tax?

    Governments and taxing entities impose direct taxes directly on individuals and businesses.
  3. Personal Finance

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  4. Personal Finance

    Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  5. Personal Finance

    A Concise History Of Changes In U.S. Tax Law

    We look at how U.S. taxes have changed since their inception.
  6. Personal Finance

    The History Of Taxes In The U.S.

    The number of taxes that we now consider a given did not always exist. Find out how they arose.
  7. Personal Finance

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  8. Personal Finance

    Use Tax Vs. Internet Sales Tax: How Are They Different?

    Learn about the differences between a use tax and an Internet sales tax. Find out about transactions in which the taxes apply, and to whom they apply.
  9. Financial Advisor

    Federal Tax Brackets

    Why do we have income tax brackets? What do they do for us? Read this to understand the basics and where to find your own bracket.
  10. Personal Finance

    Understanding Taxes

    Taxes are mandatory fees that individuals and corporations must pay to their governments.
RELATED FAQS
  1. What is the difference between income tax and capital gains tax?

  2. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  3. What are the differences between regressive, proportional and progressive taxes?

    Understand the differences between the most common tax systems including regressive taxes, proportional taxes and progressive ... Read Answer >>
  4. What's the difference between the marginal tax rate system and a flat tax?

    Find out about the difference between marginal tax rates and flat taxes. Gain insights on both systems and the arguments ... Read Answer >>
  5. What is the difference between a regressive tax and proportional tax?

    Learn about the differences between regressive, progressive and proportional taxes and how they each affect everyday finances ... Read Answer >>
  6. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center