Which of the following is an example of a direct tax?

• A. Income tax
• B. Sales tax
• C. Customs duties
• D. Property tax

Answer: (A)

Direct taxes are paid straight to the government by the person or entity on whom the tax is based. Income tax fits this because the amount you owe is calculated from your earnings and you remit it directly to the tax authority; it’s a direct obligation tied to your income, not tied to a purchase. In contrast, sales tax is added at the point of sale and collected by the seller, who then passes it to the government, so the tax is tied to a transaction rather than to the payer’s income. Customs duties are tariffs on imports collected at the border, and while they affect prices, the collection is tied to the transaction of bringing in goods, making them indirect as well. The key idea is whether the tax is paid directly by the person who earns or owns the taxed item, rather than being embedded in the price of goods or services.