Taxes on Goods and Services
Indirect Taxes
What are indirect taxes?
• Taxes on commodities (goods/services) & market transactions
• Examples:
- VAT
- excise duties
- customs duties
- fuel levies
Main characteristic of indirect taxes:
• Indirect taxes can usually be shifted to someone else.
• Meaning that the person legally paying the tax may not actually bear the
burden.
• Example: A business pays VAT to SARS, but shifts the burden to
consumers through higher prices.
Single-stage vs Multi-stage Commodity Taxes:
• Single-stage commodity tax = collected once only.
- Example: A tax charged only at retail stage
• Multi-stage commodity tax = collected more than once, at different stages
of production.
- Example: VAT
- VAT is charged at:
1. raw material stage
2. manufacturing stage
3. wholesale stage
4. retail stage
- So VAT follows the product throughout production.
, Types of indirect taxes:
1. Selective (narrow-based)
• Taxes on specific goods only.
• Examples: excise duties or customs duties
2. General (broad-based)
• Taxes applied broadly across many goods/services.
• Example: VAT without exemptions or zero-rating.
Excise duties
o Selective taxes levied on specific goods / specific transactions
o It can apply to domestic goods and imported goods
o Customs duties / tariffs = when excise duties are imposed on imports
o Types of excise duties:
1) Specific (unit) tax
- Fixed amount per unit.
- R5 tax per cigarette pack.
2) Ad valorem tax
- Percentage of value.
- 15% tax on luxury cars.
- Tax = " × Value of Commodity
o VAT vs Excise Taxes:
- If VAT:
§ has no exemptions
§ has no zero-ratings
§ then it is: broad / general
- Excise taxes
§ Excise taxes are highly selective
§ They target specific products.
- BUT if government introduces:
§ many exemptions
§ many zero-rated goods
§ then VAT becomes less general and more selective
§ \VAT starts behaving more like an excise tax.
o Sumptuary (Sin) Taxes = selective excise taxes imposed to reduce
consumption of certain goods.
o Examples: carbon taxes, tobacco taxes, liquor taxes, sugar tax