What type of tax is typically NOT considered a direct tax?

Value Added Tax (VAT) is typically not considered a direct tax because it is levied on the value added at each stage of production or distribution rather than directly on individuals or corporations. It is a consumption tax that is ultimately borne by the end consumer, making each transaction in the supply chain subject to tax. This distinguishes it from direct taxes, which are paid directly by individuals or entities to the government, such as corporate income tax, capital gains tax, and income tax.

Direct taxes are based on an individual’s or company’s income, profits, or wealth, meaning they are assessed directly on the taxpayer, while indirect taxes, like VAT, are included in the price of goods and services, where the seller collects the tax on behalf of the government. Thus, VAT exemplifies an indirect tax structure, reinforcing why it does not fall under the category of direct taxes.