Question : What is the difference between a direct tax and an indirect tax?
Option 1: Direct taxes are paid directly to the government, while indirect taxes are paid to a third party
Option 2: Direct taxes are paid to a third party, while indirect taxes are paid directly to the government
Option 3: Direct taxes are paid by corporations, while indirect taxes are paid by individuals
Option 4: Direct taxes are paid by individuals, while indirect taxes are paid by corporations
Correct Answer: Direct taxes are paid directly to the government, while indirect taxes are paid to a third party
Solution : The correct answer is (a). Direct taxes are paid directly to the government, while indirect taxes are paid to a third party.
Direct taxes are taxes that are directly imposed on individuals or entities by the government. These taxes are paid directly by the taxpayers to the government. Examples of direct taxes include personal income tax, corporate income tax, property tax, and wealth tax.
Indirect taxes, on the other hand, are taxes that are imposed on the production, sale, or consumption of goods and services. These taxes are ultimately passed on to the end consumers as part of the price of the goods or services. Indirect taxes are collected by a third party, such as a retailer or service provider, on behalf of the government. Examples of indirect taxes include value-added tax (VAT), sales tax, excise tax, and customs duties.
In summary, direct taxes are paid directly to the government by the taxpayers, while indirect taxes are collected by a third party and then remitted to the government.
