Indirect tax

An indirect tax is paid by an upstream supplier in a supply chain and then added to the price that is charged to downstream customers. Thus, the tax is invisible to the ultimate consumer as a separate tax. A common example of an indirect tax is an import duty, which is paid by the importer; the cost of the duty is then added to the price of the product being sold to third parties. Another example is a carbon tax levied on a manufacturer; again, the manufacturer pays the tax and then builds this additional cost into the amount charged to customers.

An indirect tax is paid by all customers in proportion to the amount they spend, and so is considered a regressive tax. That it, the effect is proportionally larger for those with lower incomes, since a larger percentage of their incomes is spent, rather than saved.