Which of the following is considered an indirect tax?

Which of the following is considered an indirect tax?

• A. Corporate income tax
• B. Capital gains tax
• C. Value-added tax (VAT)
• D. Property tax

Answer: (C)

Value-added tax (VAT) is considered an indirect tax because it is levied on the value added to goods and services at each stage of production or distribution, rather than being directly charged to the income or property of an individual or corporation. VAT is typically included in the sale price of goods and services, which means that the burden of the tax is passed on to consumers rather than being paid directly by the businesses that produce or sell those goods or services. In contrast, corporate income tax and capital gains tax are direct taxes because they are imposed directly on the income or profits of corporations and individuals, respectively. Property tax, while it is levied on property ownership, is also classified as a direct tax because it is based on the value of the property owned, thus directly impacting the property owner. Therefore, VAT stands out as the correct answer since it represents an indirect tax mechanism through which consumers ultimately bear the tax cost.

Value-added tax (VAT) is considered an indirect tax because it is levied on the value added to goods and services at each stage of production or distribution, rather than being directly charged to the income or property of an individual or corporation. VAT is typically included in the sale price of goods and services, which means that the burden of the tax is passed on to consumers rather than being paid directly by the businesses that produce or sell those goods or services.

In contrast, corporate income tax and capital gains tax are direct taxes because they are imposed directly on the income or profits of corporations and individuals, respectively. Property tax, while it is levied on property ownership, is also classified as a direct tax because it is based on the value of the property owned, thus directly impacting the property owner. Therefore, VAT stands out as the correct answer since it represents an indirect tax mechanism through which consumers ultimately bear the tax cost.