What describes an indirect tax?

An indirect tax refers to taxes that are levied on the consumption of goods and services rather than on individual income or profits. This type of tax is typically included in the price of products, meaning that consumers pay the tax indirectly when they purchase items. Common examples of indirect taxes include value-added tax (VAT) and sales tax.

This type of tax affects how consumers make purchasing decisions and can influence overall spending patterns in the economy. It is distinct from direct taxes, which are assessed directly on an individual’s income or profits, focusing instead on the act of purchasing or consuming goods and services. Indirect taxes play a significant role in government revenue generation and can vary based on consumption levels rather than the income of individuals or businesses.