Direct and indirect tax ?

killaspec

My wife is doing an accounting course at the moment. Today she came home and asked me to tell her what a direct and indirect tax are. (Blank look tumble weeds and the sound of a gust of wind moving through empty buildings).

So anyway I Google d it and came up with these two definitions:

A direct tax is one imposed upon an individual person (juristic or natural) or on property, as distinct from a tax imposed upon a transaction. Indirect taxes such as a sales tax or a value added tax (VAT) are imposed only if and when a taxable transaction occurs; people have the freedom to engage in or refrain from such transactions; whereas a direct tax is imposed upon a person, typically in an unconditional manner, such as a poll-tax or head-tax, which is imposed on the basis of the person's very life or existence, or a property tax which is imposed upon the owner by virtue of ownership, rather than commercial use. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be.

ok (tumble weeds)

The term indirect tax has more than one meaning.
In the colloquial sense, an indirect tax (such as sales tax, a specific tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is imposed. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be.

(more tumble weeds)

This leads me to believe that VAT is both direct and indirect or am I missing the point.

Please can anyone help with a lay mans definition of what a Direct tax is and what is an indirect tax as I am confused (Knowing my wife she asked the question that she had the answer to and did it just to wreck my head)

Thanks

Matt

Alan Shore

Nice the way the wife is doing the course and asking you the questions.

I think of the difference between direct tax and indirect tax as follows:

Direct Tax is a tax on Income.
So if you earn €50,000 you pay income tax at 20% and 41% with an credits for your circumstance.

So having paid your tax you are left with your nett income.

An Indirect Tax is paid on a purchase.
So having your nett income you have an option how much indirect tax you pay. You can buy a new car or TV ect. The amount of VAT 23% depends on your decision to buy rather than the amount you earn so someone who earns €20k or €50k who spends €123 pays €23 in VAT.

Hope that helps a little.

Geuze

Direct tax = income tax

examples = PAYE, PRSI, DIRT, DWT, corporation tax

Indirect tax = tax on spending

examples = VAT, excise duties, etc.

Mr. Incognito

Direct tax is a tax on earnings.

Income tax, corporation tax, interest, dividend with-holding tax etc.

Indirect tax is a tax on transactions.

VAT, customs and excise, stamp duty, etc.

RockyTwoArms

Mr. Incognito wrote: »

Direct tax is a tax on earnings.

Income tax, corporation tax, interest, dividend with-holding tax etc.

Indirect tax is a tax on transactions.

VAT, customs and excise, stamp duty, etc.

Is the universal social charge or PRSI direct or indirect tax; they're on earnings

Mr. Incognito

RockyTwoArms wrote: »

Is the universal social charge or PRSI direct or indirect tax; they're on earnings

They are direct taxes. Directly applied on employment income