Indirect Taxes: Meaning , Types And Advantages

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Fincrif India

Jun 26

05:43 AM

Indirect taxes are essentially taxes that can be transferred to another organization or person. The typical recipient of them is a manufacturer or supplier, who subsequently passes the tax on to the buyer. Excise taxes on alcohol and cigarettes are the most prevalent examples of indirect taxes. Another illustration of an indirect tax is Value Added Taxes (VAT).

Indirect taxes are essentially taxes that can be transferred to another organization or person. The typical recipient of them is a manufacturer or supplier, who subsequently passes the tax on to the buyer. Excise taxes on alcohol and cigarettes are the most prevalent examples of indirect taxes. Another illustration of an indirect tax is Value Added Taxes (VAT).

Example of Indirect Taxes 

To demonstrate how an indirect tax is levied, let's take the example of VAT. Imagine that John visits the outlet store to purchase a RS.500 refrigerator. The salesperson will respond when the customer asks by stating the sale price, which is RS.500. This is the correct response.


Although the actual value of the refrigerator is lower than that, a VAT (often 10% to 20%) has been imposed, increasing the retail price to RS.500. John can see the refrigerator's exact cost before tax was added by looking at his receipt. The manufacturer of the product is responsible for deducting the tax from the sale price and remitting it to the government.

Types of Indirect Taxes

Sales Tax

People who go shopping at malls or department stores are already on the verge of paying indirect taxes. These kinds of taxes apply to products like furniture, clothing, and other necessities. When paying at the counter, the store adds a sales tax that it collects and disburses to the government to the final sale price.

Excise Tax

Additionally prevalent is excise tax. Indirect taxes must already be paid by manufacturers when they purchase the raw materials for their products, such as tobacco for cigarette makers. By charging more for the smokes, the manufacturer can, as part of standard business practise, shift the cost onto the consumer.

Custom Tax

 Have you ever wondered why imports cost more? The customs tariff is to blame. A levy, known as a customs tax, is paid by the importer of a container of bananas from another country.

Gas Tax 

Yes, there is an indirect tax when purchasing petrol for vehicles.


Advantages Of Indirect Taxes 

Indirect taxes are not always a bad thing, despite the fact that taxes may seem like an additional burden for customers. Here are a few of their benefits:

1. The underprivileged can contribute

Contrary to direct taxes, which typically do not apply to the poor, indirect taxes enable them to participate in the process of raising money for a nation or state.

2. They are not very clear

As they are included in the price of an item, indirect taxes are not always clear. Because taxes are little in amount, people don't feel like they are paying them. Additionally, consider the fact that they are only visible on the purchase receipt and not on the price tag. Additionally, by avoiding the purchase of the good .

3. Collecting is simple

Contrary to direct taxes, which call for the completion of paperwork and filing, indirect taxes are paid at the time a customer purchases a good. The provider is in charge of collecting and paying the tax to the government.

4. Discourages the use of dangerous items

Taxes on cigarettes and alcohol are high. Taxing these goods makes them more expensive, discouraging consumers from consuming dangerous substances.

Conclusion 

The government of India has the discretion to reduce or raise the tax rates on indirect taxes depending on the state of the economy and other considerations.  No one can dispute its significance for generating income, despite the fact that it has both benefits and drawbacks. Direct taxes allow the poor to make a tiny contribution in their own right while also being able to be collected from the wealthy.




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