Each of the following events results in a tax payment. Which is an example of a direct tax?

• A. An individual pays income tax on their salary.
• B. A customer pays excise duty on gasoline at the pump.
• C. A company pays value-added tax (VAT) on its sales.
• D. A consumer pays sales tax when purchasing goods.

Answer: (A)

Verified step by step guidance

1. Understand the concept of direct tax: A direct tax is a type of tax that is paid directly to the government by the individual or organization on whom it is imposed. Examples include income tax and property tax.
2. Analyze the given options to identify which tax is paid directly by the individual or entity to the government without intermediaries.
3. Option 1: 'An individual pays income tax on their salary' is a direct tax because the individual directly pays the tax to the government based on their earnings.
4. Option 2: 'A customer pays excise duty on gasoline at the pump' is an indirect tax because the tax is included in the price of gasoline and collected by the seller, who then remits it to the government.
5. Option 3: 'A company pays value-added tax (VAT) on its sales' and Option 4: 'A consumer pays sales tax when purchasing goods' are also examples of indirect taxes, as these taxes are collected by businesses and passed on to the government.