Tax & Compliance · 01

What is indirect tax

Once you see who really pays and who merely collects, the whole system makes sense.

The one idea

Indirect tax is a tax on transactions, not on income or profit. It's added when goods or services are sold, collected by businesses along the supply chain, and ultimately borne by the final consumer. The business is a collector, not the payer — which is exactly why getting it right is an operational job, not just an accounting one.

"Indirect" means the one who bears it (the consumer) isn't the one who hands it to the state (the business).

The three main forms

VAT

Value-Added Tax — the European model, used in most of the world. Charged at every stage, with credit for tax already paid.

GST

Goods & Services Tax — the same idea, different name (Australia, India, Canada, Singapore…).

US sales & use tax

A different design — charged once, at the final retail sale, and set by thousands of state and local jurisdictions.

How VAT/GST actually flows

Each business charges tax on what it sells (output tax) and reclaims the tax on what it buys (input tax), then remits only the difference. So the tax lands on the value each one adds — and only the end consumer, who can't reclaim, pays the full amount.

Supplier→ Manufacturer→ Retailer→ Consumer pays it all

Each link charges tax, reclaims what it paid, remits the rest. The chain is self-policing — one party's output tax is the next one's input credit.