What is meant by "indirect tax" in relation to corporate income tax?

The term "indirect tax" refers to taxes levied on goods and services rather than directly on the profits of individuals or businesses. When a company sells a product, it may include an indirect tax, such as a sales tax or value-added tax (VAT), within the price that consumers pay. These taxes are ultimately borne by the consumer, even though they are collected by the business during the transaction.

In contrast, other forms of taxation, such as corporate income tax, are considered direct taxes because they are applied directly to the company's profits and are paid by the corporation itself based on its earnings. The distinction is significant because it highlights how the taxpayer may differ from the entity responsible for remitting the tax to the government.

Understanding the nature of indirect taxes is crucial for businesses as they often need to account for these taxes in their pricing strategies and comply with regulatory obligations concerning their collection and remittance.