What distinguishes an indirect tax from a direct tax?

An indirect tax is characterized by being levied on goods and services rather than being applied directly to a person's income or profit. This means that the consumer does not pay the tax directly to the government; instead, the tax is included in the price of the goods or services and is collected by sellers. When consumers purchase a taxed item, they effectively pay the indirect tax through their purchase, while businesses remit this tax to the government.

This distinction plays a crucial role in understanding fiscal policy and taxation systems. For example, value-added tax (VAT) and sales tax are common examples of indirect taxes that increase the cost of goods and services for consumers without explicitly being listed as a tax on receipts. This differentiates them significantly from direct taxes, such as income tax or corporate tax, which are directly assessed based on the earnings of individuals or companies.

The other choices do not accurately define the nature of indirect taxes. For instance, saying that indirect tax is levied directly on profits misrepresents its application. Furthermore, the assertion that it is only paid by consumers overlooks that businesses are responsible for remitting the tax to the government. Lastly, while direct taxes can be variable based on income levels, this is not a defining characteristic of indirect taxes. Instead