Which statement best describes an indirect tax?

Which statement best describes an indirect tax?

• A. A tax charged on income
• B. A tax that passes the burden on to others
• C. A tax imposed on one part of the economy with the intention of passing on the burden
• D. A tax that reduces VAT rates

Answer: (D)

Indirect taxes are charges on spending rather than on earned income, and the economic burden often ends up on consumers through higher prices. The best description among the options is a tax that passes the burden on to others, because the incidence of an indirect tax is typically shifted from the payer to the party who ultimately bears the cost, usually consumers. This contrasts with a tax on income, which is a direct tax paid by the individual, and with descriptions about policy changes or sector-targeted wording, which do not define the nature of indirect taxes.

Indirect taxes are charges on spending rather than on earned income, and the economic burden often ends up on consumers through higher prices. The best description among the options is a tax that passes the burden on to others, because the incidence of an indirect tax is typically shifted from the payer to the party who ultimately bears the cost, usually consumers. This contrasts with a tax on income, which is a direct tax paid by the individual, and with descriptions about policy changes or sector-targeted wording, which do not define the nature of indirect taxes.