Navigating Indirect Taxes: Understanding the Impact and Compliance Requirements

Indirect taxes refer to the tax imposed on the expenses incurred by individuals while buying goods and services. Unlike direct taxes, these taxes are not directly charged to the income of individuals. Levied by the government, an indirect tax is chargeable under expenditure, services, consumption, and privileges.

This comprises custom duties paid on imports, excise duty involved in production, etc. Indirect taxes are also called consumption taxes. Read this article to better understand indirect tax in Australia, its impact, and more.

What are the Benefits of Indirect Taxes in Australia?

Precisely, indirect taxes tend to increase the price of the goods and services on which they are imposed. The following are the positive impact of indirect taxes in Australia:

  • Easy to Collect

Indirect taxes are comparatively easier to collect than that of direct taxes. Both service providers and retailers impose this tax on an item’s market price and collect it during its purchase. Consequently, the preliminary taxpayer (service provider or retailer) should be okay with recollecting it from consumers.

  • Proper Distribution of Tax 

Indirect tax features an inverse relationship with the demand for various goods. Products that fulfil the daily needs of individuals are charged at a lower tax rate. Contrarily, expensive and luxurious products come with higher indirect tax rates.

  • Eases the Stress of Tax Payment

Taxpayers do not need to pay the indirect tax from their salary. The government imposes this tax on the market value of that product and collects it whenever it is bought. As a result, it does not seem burdensome for the taxpayers.

  • Helps Save Time

As the taxpayer is the concluding buyer, service providers and retailers collect it directly while buying products from their stores. Thus, the collection of indirect tax is convenient and time-saving.

  • Reduces Negative Consumption

The maximum indirect taxes levied on goods bad for health, such as tobacco, alcohol, etc. So, they turn out to be costlier, which reduces reckless spending.

As opposed to positive impacts, indirect taxes also have some negative impacts.

What Are the Disadvantages of Indirect Taxes?

Mentioned below are the disadvantages of indirect taxes:

  • Cumulative Nature

Charging indirect taxes often becomes cumulative since intermediaries charge a high tax rate at every transaction. This results in increasing the price of the commodity.

  • Regressive Nature

It remains regressive even after the emergence of the Goods and Services Tax. Since indirect taxes are imposed on various goods, it becomes expensive for poor people to afford.

  • Inauspicious for Industries

Indirect tax is not favourable for growing industries. As intermediaries charge a high tax rate on raw materials, their production cost hinders industries from developing freely.

What Is Indirect Tax Compliance in Australia?

Indirect tax compliance involves fulfilling Value Added Tax (VAT), Goods and Service Tax (GST) and Sales Tax duties. It encompasses accurate and timely computation of taxes, reporting of purchases and sales, and sending relevant data to the tax authorities.

Since much calculation is required in this process, there might be a chance of errors. To lessen this type of mistake from your financial records, it is better to take expert assistance from accounting firms in Australia. The aim behind measuring tax compliance is to check whether an organisation’s tax return filing, periodic reporting, payments, etc., are met on time flawlessly.

What Are the Types of Indirect Taxes in Australia?

The following are the types of indirect taxes charged in Australia:

  • Customs Duty

Customs duty is the tax levied on various goods when dispatched across international borders.

  • Stamp Duty

Also known as transfer duty, stamp duty is the amount of tax levied on the sale or purchase of a property by the state government.

  • Wine Equalisation Tax

While importing wine into Australia or selling it wholesale, you have to bear with the wine equalisation tax (WET). WET refers to a tax of 29% of the wine’s wholesale price.

  • Excise Duty

Excise Duty is the amount of tax imposed on the goods manufactured within a country.

  • Value Added Tax (VAT)

Governments collect VAT on the goods at every point of purchase where a value is added. This tax is charged right from the purchase of raw materials to the sale of finished goods.

  • Goods and Service Tax (GST)

GST refers to the tax imposed on goods and services sold within the country. In Australia, 10% GST is levied on the sale of goods.

In a nutshell, indirect tax refers to something the government charges to a manufacturer in the country. Since it is levied on consumer products, this streamlines tax collection procedures and increases government income.

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