Taxes are often looked at with understandable contempt by consumers and businesses alike. Indirect taxes though are espoecially looked at with contempt by consumers. Arguably the most questionnable taxes levied by the government tend to come in the form of indirect taxes. And while they do not initially seem like they affect the prospects of businesses, indirect taxes have consequences that ultimately affect consumers. We will dicsucss indirect taxes, the difference between direct taxes, examples of indirect taxes and how they impact consumers and ultimately businesses.

Indirect taxes

Indirect taxes are taxes levied by governments and tax authorities that an entity such as a business can pass on to consumers. A good example of an indirect tax is Value Added Tax (VAT) which businesses pass on to consumers through the final pricing of goods and services. Consumners will pay a final price that is VAT inclusive on goods and services, ther tax portion of that final price does not go to the business but is ultimately handed over to the tax authority. You will see this on your receipts from stores and serbvice providers. How does this affect consumers?

Indirect taxes versus direct taxes

Direct taxes are taxes that the responsible taxpayer pays directly to the government or tax authority. Income taxes (both corporate and individual) are examples of direct taxes. The tax is levied on the income earned by the taxpayer (or profit in corporate tax) and paid directly to the government based on that. In indirect taxes, there is usually a collection mechanism through businesses that ultimately surrender the tax to the government. Keeping with our VAT example from earlier a VAT registered business will charge Output VAT on goods and services rendered to customers. The customers pay this to the business. The business will then forward this money to the government. Direct taxes may be withheld by a paying entity and passed on to the government such as dividend tax. The great distinction between direct and indirect taxes is that businesses can include the cost of indirect passes in products (pass it on to consumers) while this cannot be done with direct taxes.

Examples of indirect taxes

Have already used the example of VAT as an indirect tax but customers pay more indirect taxes than you would immediately assume

Excise duty

Excise duty is an example of an indirect we are all at least somewhat familiar with. Excise duty is applied to certain products and behaviours in addition to existing prices. Recent focus in Zimbabwe has been heavy on excise duties on alcohol and tobacco products.

Import duty

Import or customs duty is a tax levied on those importing products. The duty is calculated either as a percentage of the value of imported goods or a specific amount per unit of imported goods. A recent example is the US$50 import duty placed on imported mobile phones announced in the 2022 national Budget speech.


As we have an understanding of what indirect taxes are the next question that begs is why governments would choose to levy indirect taxes on consumers.

Tax activity

Governments may choose to place indirect taxes on specific activities. In the case of Zimbabwe, some of the indirect taxes imposed are attempts for the government to tax activity that has become popular in the country.

Increase the tax revenue

This one is self-explanatory. When behaviours are prevalent in an economy governments can increase tax revenue by targeting those activities. This works particularly well where no other taxes are impacting the behaviour. The Intermediated Money Transfer Tax (IMTT) is an example of this.

Behaviour correction

You may sometimes see indirect taxes referred to as sin taxes. This applies when the taxes are attached to certain behaviours to discourage them. We have many examples of this in Zimbabwe including alcohol, tobacco and import duties.

How they affect consumers

Consumers rationally shy away from behaviours and options that are more expensive. This does not mean that they entirely stop the behaviours as a collective but means you will see reduced activity. Some will completely stop the behaviour while others will be more cautious about the behaviour. As you will appreciate members of an economy are autonomous with each conducting a behaviour for their reasons and motivations. This behaviour and motivation can be altered when the cost of doing things gets too high.