Definition & Meaning:

There are two main types of taxes. Those taxes which take money from directly from people's income and assets and those that take money when people spend (when they buy things). 'Indirect taxes' are taxes on spending.

They are taxes which are added to the price of a product or service. They are called 'indirect taxes' because the tax isn't taken directly from a person or company, but added to the price of the product or service.

They are only paid when a product/service is bought or sold. Two examples of 'indirect taxes' are 'sales tax/VAT' and 'excise tax/duty' (which is paid when people buy certain products like tobacco, petrol, alcohol etc...).

The other main type of taxes are called 'direct taxes'. This is the name for all the different taxes which take money directly from a person's or company's income, earnings or from the value of their assets (e.g. property or inheritance). Examples of 'direct taxes' are income tax, corporate tax, capital gains tax, social security tax.

Related Vocabulary:

Excise Tax, Customs Duties.

To learn more about taxes, you can do a free online exercise on tax vocabulary.