What is Tax Impact and Tax Incidence?
By BYJU'S Exam Prep
Updated on: November 9th, 2023
Tax Impact and Tax Incidence: The first resting point for a tax is its tax impact, and the last resting point for a tax burden is its tax incidence. Tax impact is what happens to the person from whom the tax is collected, whereas tax incidence reveals who is responsible for paying the tax. The producers of a product will be subject to taxation, while the consumers who pay the price to purchase a product will be subject to tax incidence.
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Tax Impact and Tax Incidence
The final tax burden is known as tax incidence, and the initial tax burden is known as tax impact. The tax incidence is on the person who eventually pays it, and the tax impact is on the person who collects the tax. In the given link, you can learn about Taxation in India – Direct Taxes and Indirect Taxes, and Taxation System Features.
The tax burden will fall on the consumers who pay the price for a product, and the tax burden will fall on the producers who manufacture the product. Below we have discussed the impact tax and incidence tax:
- Tax impact refers to the initial burden of tax when the tax incidence tells about the ultimate burden of the tax.
- The tax incidence occurs at the point of settlement when the tax impact is at the point of imposition.
- The impact of the tax falls upon the person for whom the tax is collected, and the tax incidence falls upon the person who pays it. The tax impact can be shifted but tax incidence can’t.
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