Knowledge checkpoint: Describe the distinctions between direct and indirect taxation
- Direct tax is a tax paid directly by a person or business to the government from incomes or profits, such as Income Tax and Corporation Tax.
- Indirect tax is a tax applied to a good or service at the point of sale, such as Value Added Tax (VAT). The tax is included in the price that consumers pay for a good or service. The seller of the good or service deducts the VAT from the total price and pays the tax to the government.