Which tax is considered an indirect tax on consumption?

A value-added tax (VAT) is indeed an indirect tax on consumption because it is levied on the value added to goods and services at each stage of production and distribution. Unlike direct taxes, which are assessed on income, profits, or property, indirect taxes are typically included in the price of goods and services, making them easier to collect and less visible to consumers at the point of purchase.

As consumers purchase products, they unknowingly pay this tax as part of the total cost, and the business collecting the tax passes it along to the government. This systemic approach to taxation aims to ensure that tax liability is distributed across various stages of production rather than being charged directly to the consumer or an individual entity. This characteristic aligns well with the definition of an indirect tax, emphasizing consumption rather than income.

While sales tax also applies to the consumption of goods, the value-added tax is unique because it can be imposed at multiple stages of the production process, reflecting the incremental increase in value at each stage.