CMA Intermediate · Direct and Indirect Taxation · Concept of Indirect Taxes
Which of the following is the most accurate description of an indirect tax?
An indirect tax is levied on a transaction in goods or services, and the person who pays it to the Government can shift the burden to the final consumer through the price. This separation of impact and incidence distinguishes it from direct taxes such as income tax.
- AA tax whose legal liability and economic burden fall on the same person
- BA tax levied on income of a person and paid directly by that person
- CA tax on a transaction, where the person liable to pay it to the Government can pass on the burden to the consumerCorrect
- DA tax levied only on immovable property held by a person
Explanation
An indirect tax is imposed on goods or services or their movement, and the person who deposits it with the Government typically recovers it through the price from the final consumer. Option A describes a direct tax, where impact and incidence coincide. Option B describes income tax.
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