Question

Service tax is a

• A. direct tax
• B. indirect tax
• C. regressive tax
• D. progressive tax

Hint:

Since the service provider collects the tax from the customer and deposits it separately, service tax is classified as indirect.

Answer 1

The Correct Option is B

Step 1: Understanding the Question:
We need to classify service tax as either a direct tax or an indirect tax, and further check if it is regressive or progressive.

Step 2: Key Formula or Approach:
A direct tax is paid straight to the government by the person on whom it is levied, like income tax. An indirect tax is collected by an intermediary, the service provider, from the consumer and then passed on to the government.

Step 3: Detailed Explanation:
Service tax is charged on the value of services like telecom, banking, insurance and hospitality, and it is the service provider who collects this tax from the customer and deposits it with the government.
Since the burden falls on the final consumer while the collection duty lies with the provider, it is an indirect tax, not a direct tax, so option (1) is wrong.
Regressive and progressive are properties usually discussed for a tax structure with respect to income levels, and service tax charges a flat rate regardless of the payer's income, but this is a secondary feature and not how service tax is fundamentally categorised.
The primary category of service tax is that it is indirect, so options (3) and (4) do not capture the standard classification asked here.

Step 4: Final Answer:
Service tax is fundamentally an indirect tax, so the answer is option (2).