Indirect Tax

AAA

DEFINITION of 'Indirect Tax'

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.

INVESTOPEDIA EXPLAINS '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. Zero-Rated Goods

    Products on which a value-added tax (VAT) is not levied in countries ...
  2. Goods and Services Tax - GST

    A Canadian value-added tax levied on most goods and services ...
  3. Direct Tax

    A tax that is paid directly by an individual or organization ...
  4. Luxury Tax

    A tax placed on products or services that are deemed to be unnecessary ...
  5. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  6. Gas Guzzler Tax

    An additional tax on the sale of vehicles that have poor fuel ...
RELATED FAQS
  1. I sold my house. Can I exclude the gain from my income?

    Generally, you are required to include the gain from the sale of your home in your taxable income. However, if the gain ... Read Full Answer >>
Related Articles
  1. Economics

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  2. Taxes

    What To Do If You Lost Your W-2

    There's no need to panic if you don't have your Form W-2 to file taxes, there are easy ways to gain access to the missing form or file without it.
  3. Taxes

    Will Itemized Deductions Get You A Bigger Refund?

    April and taxes are due soon. If you need to file your return, you might have to decide if itemizing your deductions this year will net you a better deal.
  4. Credit & Loans

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  5. Taxes

    The First Thing You Should Do With Your Tax Refund

    Nobody likes to pay taxes, but everyone loves to get a tax refund. When the check arrives in the mail, it's hard to resist spending it on some indulgence.
  6. Taxes

    How Does An IRS Audit Work?

    It doesn't automatically mean an IRS agent will be ringing your doorbell. Here are the different types of IRS audits and how to handle them.
  7. Taxes

    What is the Effective Tax Rate?

    The effective tax rate is the average rate at which an individual or corporation is taxed per year.
  8. Taxes

    Made A Mistake On Your Tax Return? Don't Panic

    You can always file an amended return. But the sooner you do it, the better.
  9. Taxes

    Business Taxes: Not Paying More Than You Have To

    If you're a small business owner, note these potential tax deductibles so that you don't pay taxes that could have been extra revenue in your account.
  10. Taxes

    How To Arrange An Installment Agreement For Taxes

    Not enough cash on hand for your April 15th tax bill? No need to panic. Here's what to do.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center