Indirect taxes

economic-dictionary

Indirect taxes are those taxes that a person must pay for the fact of consuming or using something. They affect all citizens equally. In other words, we all pay the same percentage of tax, regardless of our level of income or purchasing power.

From an economic point of view, indirect taxes, in terms of collection, have two advantages that direct taxes do not have.

On the one hand, indirect taxes are easier to collect, and secondly, taxpayers are less resistant to paying them because they pay it directly with consumption.

Indirect tax types

Within indirect taxes we have to differentiate between those that tax consumption, which are the best known, distinguishing in these the VAT (Value Added Tax) and special taxes, which are those that tax alcohol, tobacco, registration of cars, fuel ...).

On the other hand, and less well known, indirect taxes also include transfers of goods and rights that have been carried out outside of business activity. They are called Taxes on Patrimonial Transmissions (ITP) and Documented Legal Acts (IAJD).

Tax money generally represents public revenue, although there are some regional exceptions. For example, in Spain, they are collected by the state, except in the foral community of Navarra and the Basque Country.

Indirect Tax Example

As we have seen, indirect taxes are levied on all citizens at the same percentage.

The amount to be paid will be determined by the amount we consume. Let's look at an example with the case of VAT to better understand the explanation of indirect taxes.

We all pay the same percentage of VAT when we buy a loaf of bread, a car or any product. The difference will be that the person who has more money to spend will pay more in absolute terms because instead of a loaf of bread they will buy, they will buy two and, therefore, they will pay more taxes.

Difference between direct and indirect taxes

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