Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which of the following best describes a direct tax?

1. A tax collected from a supplier

2. A tax levied on consumer purchases

3. A tax paid directly by individuals to the government

4. A tax based on business profits

The correct answer is: A tax paid directly by individuals to the government

A direct tax is characterized as a tax that is paid directly by individuals or organizations to the government. This type of tax is imposed on the income or wealth of individuals, firms, or corporations, and the taxpayer bears the burden of the tax without any intermediary involved in the transaction. In this context, the correct choice reflects the fundamental principle of direct taxation, where the liability falls directly on the person or entity that is taxed. This contrasts with indirect taxes, where the responsibility of payment may be passed on to another party, such as consumers in the case of sales taxes. The other options delve into various aspects of tax systems but do not accurately define direct taxes. For instance, taxes levied on consumer purchases or collected from suppliers often involve third parties and are considered indirect taxes. Taxes based on business profits can fall under direct taxation; however, the best description of a direct tax is specifically related to the payment connection between the individual and the government.