Indirect tax refers to a type of tax that is imposed on goods and services rather than on individuals or entities directly. Unlike direct taxes, which are levied on individuals or businesses based on their income, profits, or assets, indirect taxes are typically imposed on transactions, consumption, or the use of goods and services. Indirect taxes are collected by intermediaries, such as businesses or retailers, who pass on the tax burden to consumers through higher prices for goods and services.

Here are key characteristics and examples of indirect taxes:

1. **Transaction-Based**: Indirect taxes are transaction-based taxes imposed on the sale, purchase, or consumption of goods and services. They are often applied at each stage of the supply chain, from production to distribution to final consumption, leading to cascading effects where taxes are levied multiple times on the same product.

2. **Collected by Intermediaries**: Indirect taxes are typically collected by intermediaries, such as businesses, retailers, or service providers, who are responsible for remitting the tax to the government. The burden of the tax is ultimately borne by consumers, who pay higher prices for goods and services to cover the cost of the tax.

3. **Regressive Nature**: Indirect taxes are often considered regressive because they impose a higher relative burden on lower-income individuals or households. Since indirect taxes are applied uniformly to goods and services regardless of income levels, they may consume a larger proportion of income for lower-income individuals compared to higher-income individuals.

4. **Types of Indirect Taxes**: There are various types of indirect taxes imposed by governments around the world, including:
– Value Added Tax (VAT) or Goods and Services Tax (GST): A consumption tax levied on the value added at each stage of production or distribution of goods and services.
– Sales Tax: A tax imposed on the sale of goods and services at the point of purchase, typically calculated as a percentage of the sale price.
– Excise Duty: A tax imposed on specific goods, such as alcohol, tobacco, gasoline, or luxury items, at the point of production or importation.
– Customs Duties: Taxes levied on goods imported or exported between countries, typically based on the value, quantity, or weight of the goods.

5. **Revenue Generation**: Indirect taxes are an important source of revenue for governments and help fund public services, infrastructure development, and government programs. They provide a stable and predictable source of revenue for governments and can be adjusted to influence consumer behavior or address specific policy objectives.

Indirect taxes play a significant role in taxation systems worldwide and affect the prices of goods and services, consumer behavior, and economic activity. Governments use indirect taxes as a tool for revenue generation, economic regulation, and redistribution of wealth, while consumers and businesses bear the ultimate burden of these taxes through higher prices and reduced purchasing power.