Indirect taxes

Indirect taxes are those which are paid by households and firms when they engage in spending, such as sales tax and Value Added Tax (VAT).  Indirect taxes are also called ‘expenditure taxes’.

Indirect taxes can be a specific amount of tax, such as £2 on a packet of cigarettes, or an ad valorem tax, such as 25% on a packet of cigarettes.

The effects of an indirect tax can be illustrated through basic micro-economics graphs.

Specific taxes