Question

Fill the following statement with suitable alternatives from the given options: Tax on imports is an example of______?
A.Indirect tax
B.Trade barrier
C.Sales tax
D.Direct tax

Answer 1

Hint: We will take over all the tax given in option and try to find tax on imports is an example of which tax. Indirect tax is the tax which we have to pay indirectly to the government. For example – VAT, Service etc. Sales tax is the additional tax we have to pay while selling products. Trade barriers are the restrictions imposed on the free flow of trade, whereas direct taxes are the tax we have to pay directly to the government. Example – Income tax.

Complete step by step answer:
It is given in the question that we have to find tax on import is an example of which type of tax. We will look over all the tax given in option and we will finally try to figure out tax on imports is an example of which type of tax. Firstly there are two types of tax which are imposed directly or indirectly by the government in our country. Direct tax and Indirect tax.
Direct taxes are the taxes which are taken by the government directly from us. It depends on our Income and this tax also varies from person to person. For example Income tax. Indirect tax which is not directly taken from us but is taken from us in an indirect way. Whenever we purchase any product we have to pay an amount of tax and this tax is constant for every person and is independent of a person's income. For example – VAT, Service tax.
Sales tax is an additional amount of money we have to pay based on a percentage of the selling price of goods and services that are purchased. For example, if we purchase a new mobile for Rs.400 and live in an area where the sales tax is 7% then we would pay Rs.28 in sales tax. Now, the barrier tax is the restriction imposed on the free flow of trade barriers. Trade barriers can either be tariff barriers or non-tariff barriers and tax on any import is an example of trade barrier, thus, option b) is the correct answer.

Note: Any restriction imposed on free flow is a trade barrier and when we have to pay tax on imports then it is actually disturbing our free flow thus it is an example of a trade barrier. Many times students think that imposed tax is an example of indirect tax which is wrong.