What type of tax is collected directly from individuals and firms and cannot be passed on?

The concept of a direct tax is essential to understanding how taxation works in an economy. A direct tax is levied directly on the income or wealth of individuals and firms. This means that the tax is paid directly to the government by the taxpayer and cannot be transferred to another party. For example, income tax and corporate tax are typical forms of direct taxes, where the burden of the tax lies with the individual or entity earning the income.

In contrast, an indirect tax is applied to goods and services and can be passed on to consumers in the form of higher prices. This differentiation highlights the unique characteristic of direct taxes—they do not allow for shifting the tax burden onto someone else, which is a vital feature in fiscal policy discussions.

Understanding the nature of progressive and regressive taxes further clarifies the distinction. A progressive tax increases the tax rate as income rises, targeting higher earners, while a regressive tax takes a larger percentage from low-income earners than from high-income earners. Though these types of taxes may also be categorized as direct or indirect, they emphasize the effects of taxation on taxpayers, rather than the fundamental mechanism of tax payment itself.

Thus, direct tax stands out as the correct answer, as it captures the essence of a tax that