What Is Indirect Tax ?
Indirect tax refers to a type tax which is which is levied on goods or services. It means it is added with the purchase price of the products. Indirect taxes are borne by the final consumer who purchase goods or services for ultimate use. It is one of the major sources of government revenue. VAT, sales tax, service tax, custom duty, entertainment tax etc, are examples of indirect tax.
Features Of Indirect Tax
The main characteristics or features of indirect tax can be highlighted as follows:
1. Shifting Of Burden
In indirect tax, burden of tax can be transferred or shifted to other people or entities. Generally, indirect tax is shifted to the final consumers while purchasing goods or services.
2. Wide Base
Indirect tax covers wide area because it is imposed on all types of products or services and all types of people (poor people, middle class people and rich people).
It is almost impossible to avoid indirect taxes because these taxes are added with the purchase price of goods.
4. Convenient To Pay
It is very easy or convenient to pay indirect tax because it is imposed on the price of goods. So, the tax payers do not feel any inconvenient.
5. Elastic
Indirect tax is elastic in nature. It can be increased or decreased by the government according to the tax policy and need of the nation.
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6. Inflationary
It is inflationary in nature. Price of the products will increase if the tax is increased.
7. Uncertain
Indirect tax is uncertain. It means people cannot exactly calculate the amount of tax they paid and government also cannot determine the exact amount of tax collected from the public.
8. Based On Consumption
Indirect tax is based on consumption rather than income (like direct tax). So, people have to pay more tax for more consumption. Therefore, it discourages impulse buying and encourages saving.
9. Government Revenue
It helps to maintain economic stability in the country because it is one of the major sources of revenue for the government.
10. Transparency
Indirect taxes are mentioned clearly on invoices while selling products or services that helps the individuals to understand the amount of tax they are paying while purchasing the products. So, indirect taxes are visible or transparent in nature.