What distinguishes indirect taxes from direct taxes?

Indirect taxes are characterized primarily by the fact that they are levied on goods and services rather than directly on income or profits. This distinction is crucial because indirect taxes are typically included in the price of goods and services; for instance, sales tax and value-added tax (VAT) are common examples of indirect taxes. When consumers purchase items, they pay these taxes without a specific income-based calculation.

In contrast, direct taxes, such as income tax, are assessed based on a taxpayer's financial income or wealth, making the connection between the amount paid and the individual's financial status more direct. Indirect taxes do not depend on the taxpayer's ability to pay but are embedded in the cost of goods and services consumed.

By emphasizing the nature of indirect taxes as being connected to the transaction of goods and services, it becomes clear why this option is the distinguishing factor. Further, the other choices do not accurately reflect the core definitions of indirect taxes, as income, voluntary payments, and non-connection to goods do not align with the fundamental characteristics of this type of taxation.