You wouldn’t think you could pay taxes without knowing it, but it actually happens all the time. So-called hidden taxes are taxes on goods and services that you, the consumer, end up paying for. They’re taxes that are charged before the product or service can be purchased, and the seller just adjusts for the tax by hiking up his or her prices. So the government gets the tax money, the seller fixes things so he or she can turn the same profit, and the consumer faces a bigger price tag in the end.

You aren’t aware of hidden taxes because they’re indirect – they can take the form of import or export taxes, sales tax, excise duties, value added tax, and more. What’s more, indirect taxes can be a sneaky way for government officials to raise revenue: if they raise, say, income taxes, everyone notices and complains, but if they raise indirect taxes, people still end up paying more, but it tends to slip under their radar.

However, some people don’t like this practice because they argue indirect taxes aren’t progressive – that is, they don’t take ability-to-pay into account the way income taxes do. If prices for consumer goods go up, that price hike is usually small change for the very rich, but for less wealthy individuals, a price increase on goods they need can make a sizable dent in their budget. For example, an added standard import tax on coffee impacts everyone who drinks coffee, rich or poor. So even though indirect taxes aren’t illegal or even truly hidden (the sellers who have to pay them can certainly see them), some people still consider them a way to increase their tax burden behind their backs.

Tags: hidden taxes, indirect taxes, tax incidence, taxes