In this short revision video we cover the topic of indirect taxes.
The UK government raises over £785 billion a year in taxes – equivalent to around 37% of GDP. The majority of tax revenue comes from three main sources: income tax, National Insurance contributions (NICs) and value added tax (VAT). Overall, around 10 per cent of total tax revenues come from indirect taxes and this is worth bearing in mind when assessing changes to the UK tax system.
What are indirect taxes?
Examples of indirect taxes
Value Added Tax (VAT)
The key point about an indirect tax is that the supplier may be able to pass on some or all of the burden of the tax onto the consumer in the form of a higher price. Or they might choose to absorb the tax by keeping their prices the same and therefore earning a smaller profit margin.
Are indirect taxes regressive?
When measured relative to household incomes, indirect taxes (around 45% of which are VAT) can be judged to be regressive: that is, those with lower incomes pay more relative to their income. However, when measured relative to household expenditure, indirect taxes are more evenly distributed across individuals.
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