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What Are Hidden Taxes?

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  • Written By: Peter Hann
  • Edited By: Angela B.
  • Last Modified Date: 03 September 2016
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While some taxes, such as personal income tax and sales tax, are usually clearly disclosed on a pay slip or sales receipt, other taxes are not always so obvious. Indirect taxes, duties, fees and charges may be added to the price of goods without the same level of disclosure, and the customer may have to look carefully to see what is being paid. In addition to clearly defined sales taxes on goods, many products have additional fees that are simply tacked on to the list price without mention. Customs duties on imports raise the final price of goods, while duties on fuel, tobacco and wine may not be evident when these items are purchased. Some taxes or duties may go under another name, such as "fees", "charges" or environmental assessments, while taxes charged on corporations can reduce the funds available to investors and, therefore, may be considered hidden taxes on individuals.

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Sales taxes are imposed in many countries in the form of a single- or multi-stage tax or a value-added tax. In most cases, the sales tax charged is indicated on the sales invoice given to the customer. In some cases, however, the price of the goods also contains hidden taxes passed on from previous transactions, such as the process of getting the supply of goods from the wholesaler to the retail outlet. This cascading effect occurs when a sales tax is imposed at more than one stage of the supply chain; the final consumer is then paying two taxes — the tax charged by the retailer and shown on the invoice and the hidden taxes that are already part of the price before the retailer adds the sales tax. Also hidden in the customer's bill may be an excise duty, or tax, imposed by governments on fuel, tobacco, wine and other consumer items and raising the price of the goods in retail outlets.

If a consumer purchases imported goods, then the price of these has often been affected by customs duties charged at the point of import into the country, though the purchaser usually will not be informed of this when buying the products. Fees charged by a government or municipality for various services also effectively are hidden taxes, the only difference being that they are earmarked for particular purposes. Many countries' environmental taxes, such as those connected to waste disposal or climate-change issues, raise the price of various activities. Corporate taxes also can be considered hidden taxes on investors, because they reduce the amount of funds available in the corporation for distribution to the shareholders or other stakeholders.

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