What is an example of a direct tax?

A direct tax is a tax that is directly paid to the government by the individual or entity on whom it is imposed. It typically involves an income or wealth assessment where the taxpayer's financial situation determines the amount owed. PAYE (Pay As You Earn) tax is a prime example of this since it is deducted directly from an employee's wage or salary by the employer before the employee receives their pay. This means that the individual does not have the option to evade or postpone payment; the tax is calculated based on their earnings and is settled directly with the tax authorities.

In contrast, other options like VAT, excise duties, and sales tax are considered indirect taxes. These taxes are levied on goods and services rather than directly on income. They are collected by intermediaries (for example, retailers) who then pass them on to the government, meaning the burden of the tax can ultimately be shifted to the consumer. Therefore, PAYE stands out as a clear example of a direct tax, reflecting an individual's personal income obligation to the state.