Which characteristic most clearly distinguishes a direct tax from an indirect tax?
Correct answer: A. A direct tax is imposed on income or wealth, while an indirect tax is imposed on spending
- A. A direct tax is imposed on income or wealth, while an indirect tax is imposed on spending
- B. A direct tax is collected by provinces, while an indirect tax is collected by the federation
- C. A direct tax is always progressive, while an indirect tax is always regressive
- D. A direct tax is voluntary, while an indirect tax is compulsory
Explanation
A direct tax is imposed directly on the person or organisation legally responsible for paying it, such as income tax. An indirect tax is charged on goods or services and may be shifted to consumers through prices. Direct taxes are not always progressive, and indirect taxes are not always regressive.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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