One example of an indirect tax is sales tax, which is imposed entirely on the buyer rather than both on the seller and the buyer. Indirect taxes are taken from stakeholders that are generally not thought to be entirely responsible for the amount being taxed.Continue Reading
Usually indirect taxes are imposed by the state on spending such as consumption expenditure or right to use. However, income and property tax are not considered to be indirect tax.
In many cases, consumption tax on consumer goods is considered an indirect tax because the state collects tax through an increased cost of goods for the end buyer, even though the product is passed between various stakeholders in the manufacturing process. Instead of taxing the middlemen involved in manufacturing a product along the way, the only tax collected is the final tax on the customer. Because of this, the tax is not equally shared between the seller and the buyer.
One argument against indirect taxes is that they alter the value of the product on the marketplace and therefore, cause prices to not equal the market equilibrium price. In economic theory, this is said to be market inefficiency, as the quantity demanded becomes less than the quantity supplied.Learn more about Taxes