The previous chapter evaluates the progressivity of overall and subordinate tax categories of tax system in China using the traditional empirical approach of tax incidence. The obtained conclusion is that the tax system in China has obvious regressivity, which is mainly arisen from the regressivity of indirect tax. Now, the problem that we should further discuss is: what impact does the indirect tax have on the income distribution gap of urban and rural residents in China? What degree does this impact have? This chapter investigates the impact of indirect tax on the urban-rural income gap and income distribution with the input-output model based on the national urban-rural family consumption and microcosmic data of income, and finds that the indirect tax burden takes on the obvious regressivity between urban and rural areas and in the urban and rural areas, which is adverse to the fair income distribution, thereby reducing the income gap.