CMA Intermediate · Direct and Indirect Taxation · Concept of Indirect Taxes
Which of the following best describes the defining feature of an indirect tax?
An indirect tax is one where the person legally liable to deposit it can pass on the burden to someone else, usually the final consumer, through the price of goods or services. Impact and incidence therefore rest on different persons, unlike direct taxes such as income tax.
- AThe person on whom it is legally levied can shift the burden to another person, usually the final consumerCorrect
- BThe tax is levied only on the income earned by an individual during the year
- CThe tax is payable only by the ultimate consumer directly to the Government
- DThe tax is levied on a person based on the ability to pay and cannot be shifted
Explanation
An indirect tax is collected by the Government from an intermediary such as a supplier or manufacturer, who passes the burden on to the consumer through the price. Hence impact and incidence fall on different persons. Income-based, non-shiftable levies describe direct taxes.
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