Direct and Indirect Taxes Flashcards

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What is a tax?

Money paid to the government on income, profits, or spending.

A tax paid straight to the government on income or profits.

Income tax and corporation tax.

A tax on spending added to the price of goods and services.

Value Added Tax (VAT) and excise duty on fuel, alcohol, or tobacco.

The seller adds it to the price and then pays it to the government.

Ad valorem is a percentage of the price, like VAT. Specific is a fixed amount per unit, such as per litre or per packet.

The price rises, so the quantity sold tends to fall.

Both consumers and producers share it. The share depends on how responsive demand and supply are to price changes.

Indirect taxes, such as excise duties, raise prices to reduce demand.