A levy placed on the purchase of goods and services, such as sales taxes and excise duties, is known as what?

A levy placed on the purchase of goods and services, such as sales taxes and excise duties, is known as what?

• A. Direct tax
• B. Sales tax
• C. Value-added tax
• D. Indirect tax

Answer: (D)

Taxes on consumption rather than on income are called indirect taxes. They’re levied on goods and services and are typically collected by sellers at the point of sale, then passed to the government. Sales taxes and excise duties are classic examples, since the price consumers pay includes the tax. Direct taxes, by contrast, are charged on income or profits and paid by the individual or business. VAT is also an indirect tax, as it’s charged on the value added and ultimately borne by the final consumer.

Taxes on consumption rather than on income are called indirect taxes. They’re levied on goods and services and are typically collected by sellers at the point of sale, then passed to the government. Sales taxes and excise duties are classic examples, since the price consumers pay includes the tax. Direct taxes, by contrast, are charged on income or profits and paid by the individual or business. VAT is also an indirect tax, as it’s charged on the value added and ultimately borne by the final consumer.