Indirect Taxes Paid by Canadians are Likely to Increase

Photo by CC user spine on Flickr

Like most Canadians, you are probably just fine with paying your fare share of taxes, bit no one wants to pay more than they are required to by law. Indirect taxes are sometimes difficult to “see” because consumers don’t pay them directly and often don’t even realize they are footing the bill. For this reason, it is always a good idea to get professional advice from a certified general accountant like Heather Weber to understand how you can reduce this tax burden.

What are indirect taxes?

The basic distinction between direct and indirect taxes is that direct taxes are applied to the firm or person and cannot be transferred to someone else. For example, direct taxes include things like income tax on individual earnings, corporate income taxes, and retail sales tax. In each case, if you earned the income or purchased the good or service, you pay the tax yourself. Indirect taxes are not applied directly to the consumer or earner, but are applied indirectly after being applied at some other point. For example, taxes paid by producers during the production process – perhaps in the form of customs duties applied to imported production components – get “passed on” to consumers in the form of higher prices.

You can also think of it like this: direct taxes are applied against income or wealth – income tax, capital gains taxes, property taxes. Indirect taxes are applied to transactions, that is to the value of goods and services a person (or business) consumes – sales tax, goods and services or value-added taxes, customs duties.

Why are indirect taxes increasing?

Governments need revenue, and one of the most visible ways that they collect revenue is through direct taxation on the incomes of people and businesses. However, because direct taxation is very visible to us, we are very aware – and quick to react – when the government announces that tax rates will be increasing. This is a very political issue and in fact, many governments are under pressure to reduce taxes rather than increase them.

Governments are more inclined to increase indirect taxes, because they are less visible as taxes – instead, they can easily appear to the consumer as “prices” rather than “taxes.”

Because governments are always on the look out for new sources of revenue, the ability to apply indirect taxes in new ways, or to enforce the collection of indirect taxes that are already in place, we are all likely to be paying more indirect tax in future. One of the areas that governments are paying more attention to is e-commerce and virtual currencies. Other new sources of indirect taxation are things like environmental levies – grocery stores are passing on the environmental taxes being charged for things like plastic bags onto the consumer.

Because indirect taxes are difficult to avoid without actually reducing the amount of services or products that you consume, it is a great idea to discuss your tax situation with a professional who can help you develop strategies to minimize your payment of indirect taxes.