What is "indirect tax"

Indirect \In`di*rect"\, a. [Pref. in- not + direct: cf. F. indirect.]

1. Not direct; not straight or rectilinear; deviating from a direct line or course; circuitous; as, an indirect road.

2. Not tending to an aim, purpose, or result by the plainest course, or by obvious means, but obliquely or consequentially; by remote means; as, an indirect accusation, attack, answer, or proposal.

   By what bypaths and indirect, crooked ways I met this crown.
   --Shak.

3. Not straightforward or upright; unfair; dishonest; tending to mislead or deceive.

   Indirect dealing will be discovered one time or other.
   --Tillotson.

4. Not resulting directly from an act or cause, but more or less remotely connected with or growing out of it; as, indirect results, damages, or claims.

5. (Logic & Math.) Not reaching the end aimed at by the most plain and direct method; as, an indirect proof, demonstration, etc.

   Indirect claims, claims for remote or consequential damage. Such claims were presented to and thrown out by the commissioners who arbitrated the damage inflicted on the United States by the Confederate States cruisers built and supplied by Great Britain.

   Indirect demonstration, a mode of demonstration in which proof is given by showing that any other supposition involves an absurdity (reductio ad absurdum), or an impossibility; thus, one quantity may be proved equal to another by showing that it can be neither greater nor less.

   Indirect discourse. (Gram.) See Direct discourse, under Direct.

   Indirect evidence, evidence or testimony which is circumstantial or inferential, but without witness; -- opposed to direct evidence.

   Indirect tax, a tax, such as customs, excises, etc., exacted directly from the merchant, but paid indirectly by the consumer in the higher price demanded for the articles of merchandise.

n. a tax levied on goods or services rather than on persons or organizations

An indirect tax (such as sales tax, per unit tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax, which is collected directly by government from the persons (legal or natural) on whom it is imposed. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be."

An indirect tax may increase the price of a good to raise the price of the products for the consumers. Examples would be fuel, liquor, and cigarette taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately, the manufacturer transfers the burden of this duty to the buyer of the car in the form of a higher price. Thus, an indirect tax is one that can be shifted or passed on. The degree to which the burden of a tax is shifted determines whether a tax is primarily direct or primarily indirect. This is a function of the relative elasticity of the supply and demand of the goods or services being taxed. Under this definition, even income taxes may be indirect.

The term indirect tax has a different meaning in the context of American Constitutional law: see direct tax and excise tax in the United States. In the United States, the federal income tax has been, since its inception on July 1, 1862, an indirect tax (more specifically an excise) even though during the 1940s, its application grew from a historical average of about 8% of the population paying it to around 90% of the population paying it as a measure to support the war effort.