Taxation is a way governments finance their activities. The taxation levels change from changing tax rules and expanding tax bases. The revenue collected is used for the welfare of taxpayers. However, there are exceptions, such as payroll taxes, where contributors benefit from medical coverage and retirement benefits. Remember, taxation greatly varies between developing and developed countries, direct or indirect. In developed countries, it’s higher, while in developing countries, it’s lower.
In addition, it can be affected by the competency of the political system or rules governing a country. So, what are the various types of indirect taxes and their implications?
What are indirect taxes?
They refer to taxes that can be passed on to another individual or entity, for example, taxes normally charged to a manufacturer or supplier who hands the tax to the consumer. A good example is an excise tax on cigarettes and alcohol. Another type of indirect tax is the value-added tax(VAT). In this tax form, the consumer contributes by paying more for the product. To comprehend it well, here are the types of these taxes.
Types of indirect taxes
Everyone pays tax, especially indirect taxes. The reason is all goods you consume have levied a tax on them. Here are the various types of these taxes.
1. Excise tax
It’s a common form of indirect tax. When a manufacturer buys raw materials for firm products, they have to pay taxes on the items, for instance, buying tobacco to make cigarettes. As a norm for businesses, they can put the burden of tax on the consumer by selling cigarettes at a higher price.
2. Sales tax
When you walk into a department store or mall, if you purchase, you pay tax. Goods you buy, such as clothing, household, and basic items, are charged sales tax. When you pay, the final sale price is padded with a sales tax that the store collects and pays to the government.
3. Custom tax/import
As you know, imported products are very expensive. Do you know the explanation behind these high prices? It’s because of the customs tax. For example, when a container filled with toys enters the US, the importer pays tax. The business person then passes it to the consumers indirectly.
4. Gas tax
The gas tax is a term used to refer to the different taxes levied on gasoline at the federal and state levels. The money that comes from this international taxation funds highway repair and maintenance and other government infrastructure projects. These taxes are levied in various ways, such as per-gallon excise taxes imposed on wholesalers. Then the sales taxes apply to you when purchasing gasoline. In addition, purchasing gasoline for cars has an indirect tax that you pay.
As mentioned, these taxes are passed to another person or entity. They are different types that affect different commodores. They include excise tax, import duties, sales tax and gas tax. For example, if a manufacturer pays for items to make a product, the consumer pays taxes by buying the commodity at a higher price. So, everyone pays tax somehow, whether it’s directly or directly.
