Indirect Taxes Flashcards

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What is an indirect tax?

A tax on spending on goods and services. The seller adds it to the price and pays it to the government.

A direct tax is taken from income or profit and paid straight to the government. An indirect tax is added to prices and paid when you buy things.

VAT and excise duty on fuel and alcohol.

A fixed amount charged per unit sold, for example 50p per litre.

A percentage tax on the price, for example 20% VAT. The cash amount rises when the price is higher.

It shifts supply left because costs per unit rise. For an ad valorem tax, the shift gets bigger at higher prices.

The price buyers pay rises. The price sellers keep falls. The quantity traded falls.

It is how the burden of a tax is shared between consumers and producers.

Consumers pay most, because they keep buying even when the price rises.

Producers pay more, because buyers cut purchases a lot when the price rises.

Multiply the tax per unit by the number of units sold.

To raise money and to reduce use of goods that harm health or the environment.