merits and demerits of direct and indirect taxes pdf Saturday, March 13, 2021 4:03:00 AM

Merits And Demerits Of Direct And Indirect Taxes Pdf

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An indirect tax is one in which the burden can be shifted to others.

Direct and indirect export: pros and cons

An indirect tax is charged on producers of goods and services and is paid by the consumer indirectly. This percentage tax is known as an ad Valorem tax — it means the producer is charged a percentage of the price. It is the firm selling the good which is responsible for collecting the tax and paying the government. If the government imposed import duties on goods such as whiskey imports. The supermarket importing the whisky is responsible for paying the import duty on arrival in the country.

If the government imposes an indirect tax on a good, the effect on the final price depends on the elasticity of demand. If demand is price inelastic, then the firm will be able to pass on the majority of the tax to the consumer consumer burden.

If the demand is price elastic, then the producer will absorb most of the tax in reduced profit margin known as producer burden. A direct tax is paid for by the individual the government is aiming to tax.

For example, with income tax, workers pay the tax directly to the government. Direct taxes can have a higher political cost because the impact is more pressing to the individual. Import duties as indirect tax If the government imposed import duties on goods such as whiskey imports.

The burden of indirect taxes If the government imposes an indirect tax on a good, the effect on the final price depends on the elasticity of demand.

If the demand is price elastic, then the producer will absorb most of the tax in reduced profit margin known as producer burden Comparison with direct taxes A direct tax is paid for by the individual the government is aiming to tax.

Advantages of indirect taxes It is easier for firms to pay indirect taxes than consumers In the US, some sales taxes are direct. This means when a good is bought. The shop adds the indirect tax onto the good. This means consumers see incorrect prices and the final price can be an awkward amount to pay e. Indirect taxes can be used to overcome market failure and make people pay the full social cost. For example, excise duties like cigarette and tobacco tax can internalise the external cost of smoking and drinking alcohol.

Potential disadvantages of indirect taxes Regressive nature of indirect taxes. Indirect taxes tend to take a higher percentage of income from those on low income. Cigarette taxes can encourage a black market in bootleg cigarettes.

Related Direct taxes Tax on negative externality Regressive tax Specific tax. Our site uses cookies so that we can remember you, understand how you use our site and serve you relevant adverts and content. Click the OK button, to accept cookies on this website.

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Direct and Indirect Taxes—Merits and Demerits

Direct taxes refer to the type of tax which is directly imposed on a person. A direct tax has to be paid by the person on whom the tax was legally imposed on in the first place. In other words, unlike indirect taxes, the burden of a direct tax cannot be shifted to someone else. Like any other type of tax, direct taxes have their own advantages and disadvantages. In this article, we will be discussing some of the most notable advantages and disadvantages of direct taxes, which may also be referred as the merits and demerits of direct taxes. The canon of equality states that the taxes should be implied on the basis of equality. It is important to note that equality here does not mean that everyone should pay the same amount of tax.

An indirect tax is charged on producers of goods and services and is paid by the consumer indirectly. This percentage tax is known as an ad Valorem tax — it means the producer is charged a percentage of the price. It is the firm selling the good which is responsible for collecting the tax and paying the government. If the government imposed import duties on goods such as whiskey imports. The supermarket importing the whisky is responsible for paying the import duty on arrival in the country. If the government imposes an indirect tax on a good, the effect on the final price depends on the elasticity of demand. If demand is price inelastic, then the firm will be able to pass on the majority of the tax to the consumer consumer burden.

All taxes paid directly to state authorities by the taxpayer are direct taxes, income tax, wealth tax, corporation taxes are the examples of direct taxes. Sales tax, Value added tax, excise duties are examples of indirect taxes. The burdens of these taxes are passed on by the supplier to the final buyer. Mode of collection is indirect form the tax payer, and rightly called indirect taxes. Indirect taxes are easy to implement as these are not related directly to the taxpayer income and depends on levied if the purchase or that particular transaction take place for which tax will due. Tax payer feels comfortable to pay tax on individual transaction.


Direct taxes are levied on a person's or a firm's income or wealth and indirect taxes on spending on goods and services. Thus, direct taxes are paid directly by the.


Advantages and Disadvantages of Direct Taxes

Updated on Jan 05, - PM. Tax is a mandatory fee imposed upon individuals or corporations by the Central and the State Government to help build the economy of a country by meeting various public expenses. Taxes are broadly divided into two categories- Direct and Indirect taxes. It is a tax levied directly on a taxpayer who pays it to the Government and cannot pass it on to someone else. Some of the important direct taxes imposed in India are mentioned below:.

In this article we will discuss the merits and demerits of direct and indirect taxes on an economy. Taxes may be classified as direct and indirect. Thus, direct taxes are paid directly by the person or firm on whom the assessment is made, while indirect taxes are paid indirectly by consumers in the form of higher prices. Direct taxes cannot be legally evaded but in direct taxes can be avoided because people can reduce their purchases of the taxed goods and services. Direct taxes are mainly collected by the central government.

This study note looks at the relative advantages and disadvantages of direct and indirect taxation. The tax liability cannot be passed onto someone else. Indirect taxes — include VAT and excise duties. The supplier can pass on the burden of an indirect tax to the final consumer — depending on the price elasticity of demand and supply for the product. The overall burden of taxes in a country is measured by the tax burden - this is total tax revenues each year divided by the level of GDP.

Direct and Indirect Taxes in India

Advantages of Direct Taxes

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Direct and Indirect Tax: Merits and Demerits | Economics

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Fiscal Policy - Analysing Direct and Indirect Taxes

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