Question

To which type of tax are the terms Impact, Shifting, and Incidence relevant?

Answer 1

The terms Impact, Shifting, and Incidence are primarily associated with indirect taxes.

In indirect taxes (such as sales tax or GST), the impact refers to the person who initially pays the tax (usually the seller). The shifting occurs when the tax burden is passed on to another party, typically the consumer, through higher prices. Finally, the incidence of the tax refers to who ultimately bears the economic burden of the tax, which is usually the consumer.

This process makes these terms highly relevant to indirect taxation, where the tax can be shifted from one party to another.