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Indirect Taxes
An indirect tax (such as sales tax, a specific
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).
A sales tax is a tax paid to a governing
body for the sales of certain goods and
services.
Seller can collect funds for tax from
consumer at point of purchase
A per unit tax, or specific tax, is a tax that is
defined as a fixed amount for each unit of a good or
service sold, such as cents per kilogram.
Have administrative advantage when it is easy to
measure quantities of the product or service being
sold.
Ad valorem tax – a charge based on a fixed
percentage of product value.
A value-added tax (VAT) or goods and services
(GST) is a form of consumption tax. From the
perspective of the buyer, it is a tax on the purchase
price.
Tax on purchasing price
Purpose: to provide incentive for production &
growing businesses & to generate revenue to
government
Sale price charged to its customer
ADVANTAGES INDIRECT TAX
1. The poor exempted from paying direct taxes.
2. Convenient to both tax payer and State.
3. Can spread over a wide range.
4. Easy to collect when goods are bought and sold.
5. Elastic in yield.
6. Equitable.
7. Check consumption on harmful commodities.
DISADVANTAGES INDIRECT TAX
1) Not equitable.
2) Discourage industries if raw materials are
taxed.
3) Uneconomical
4) Do not develop civic-consciousness
DIFFERENTIATION BETWEEN VAT/GST & SALES TAX
• SALES TAX – applied at a single level
• VAT – traces progress of a product from initial
concept to final transaction
• GST – best described as a sales tax that applies
not only to finished products but services as
well.