Question 13:Distinguish between direct and indirect taxes, with suitable examples.
The correct answer is – Direct taxes and indirect taxes are two types of taxes that are levied by the government. Here are the differences between direct and indirect taxes:
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Definition: Direct taxes are taxes that are directly levied on the income, wealth, and property of individuals and organizations. Indirect taxes, on the other hand, are taxes that are levied on the goods and services purchased by consumers.
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Collection method: Direct taxes are collected directly from the taxpayers, while indirect taxes are collected by the government through intermediaries, such as manufacturers, wholesalers, and retailers, who pass the tax burden on to consumers in the form of higher prices.
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Examples: Some examples of direct taxes are income tax, corporate tax, wealth tax, and property tax. These taxes are based on the ability of the taxpayer to pay and are calculated as a percentage of their income, profits, or property value. Some examples of indirect taxes are sales tax, excise duty, customs duty, and service tax. These taxes are included in the price of goods and services, and consumers pay them indirectly when they purchase these products or services.
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Impact on individuals: Direct taxes are considered to be more progressive as they are based on the ability to pay, and individuals with higher income or wealth pay a higher proportion of their income as tax. Indirect taxes, on the other hand, are considered regressive as they have a higher impact on individuals with lower income, who have to spend a higher proportion of their income on basic necessities.
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Administrative costs: Direct taxes are more complicated to administer, as they require detailed record-keeping and tax returns to be filed by taxpayers. Indirect taxes are easier to administer, as they are collected by intermediaries who are responsible for the payment of the tax.
