Indirect Taxes (Government Intervention)

An indirect tax is imposed on producers (suppliers) by the government. Examples include duties on cigarettes, alcohol and fuel and also VAT. A carbon tax is also an indirect tax. Indirect taxes are a form of government intervention in markets.

Value added tax in the UK

• The standard rate of VAT is 20%
• Reduced rate of 5% is applied to domestic fuel and power, women’s sanitary products, children’s car seats, contraceptives
• Zero-rated VAT on Food, Construction of new dwellings, rail and bus fares, books, newspapers and magazines, Children’s clothing, prescription drugs
• Exempt from VAT - rent on domestic dwellings, Private education, Health service, Postal services, Burial and cremation, Small traders below the turnover limit for VAT registration

Revision for other types of government intervention:

Quizlet revision activity on government intervention in markets