TYPES OF TAXES :-
(A) Direct
Tax :- A tax which
is paid by a person on whom it is legally imposed and the burden of which cannot
be shifted to any other person is called a direct tax. In other words, the
person from whom it is collected cannot shift its burden to anybody eise. Thus,
the impact i.e. the intial of first burden, and the incidence i.e. the ultimate
burden of direct tax is on the same person. The tax payer is the tax bearer.
For eg. :- Income tax is a direct
tax.
Merits of Direct Taxation :-
1. Equity
:- Direct taxes like
income tax, wealth tax etc. are based on the principle of equity (ability to
pay) since they are charged according to the level of income of the tax payer.
2. Economical
:- The principle of
economy is also well maintained under direct taxation. Direct taxes being
collected annually in lump sum, the administrative cost of such collection will
be minimum as compared to the indirect taxes like sales tax, excise duties,
etc. Which are collected at short intervals (usually quaterly) and which
involve high cost of collection. Further chances of tax, evasion are also
minimised in direct tax when they are collected at sources.
3. Elastic
And Productive :-
Direct taxes are elastic and productive. Revenue from direct taxes will also
increase in income of the people.
4. Inequalities
Reduced :- The rich
are called upon to pay higher taxes so as to bridge the gap between the have
and have-notes.
5. Certainly
:- There is a good
deal of certainly in the direct taxes. The amount of tax, the time of tax etc.,
art certain and fixed in the case of direct taxes. Therefore, direct taxes are
convenient from the view point of tax payers.
6. Civic
Consciousness :-
Direct taxes have an educative value as they create a civic sense among the tax
payers. Citizens realise their duty to pay taxes and because of the direct
burden of taxes they become conscious and keep vigii on how the public income
is spent by the government in a democratic country, i.e. it develops the
responsibility among the tax payers.
Demerits :-
1. Pinching
:- Since direct
taxes are to be paid in a lump sum this pinch the tax payers more. It causes
tension to the tax payers.
2. Evasion
And Corruption :- Since
the assessment of direct taxes depends upon the voluntary declaration of the
tax payers about his income wealth etc., there is great scope for tax evasion
by cocealing real income. Thus, in fact under direct taxation, honesty is taxed
while dishonesty is rewarded. Tax evasion is effect leads to corruption also.
3. Narrow
Base :- Direct taxes
are levied on a small portion of the population of the country. It means a
large section of masses remains untouched i.e. since their income is below the
margin escape taxes.
4. Arbitarary
:- The nature and
base of direct taxes are arbitrarity decided by the Finance Minister
(Government). They used their own judgements in determining the taxation
potential of the tax payer. There is no scientific base for evolving the mode
of gradation and progression in direct taxation.
5. Dis-Incentiveness
:- Direct taxes
being based on income and wealth, if they are excessive ma discourage savings
and kills the incentive to work hard.
(B) Indirect
Tax :- An indirect
tax on the other hand, is a tax the burden of which can be shifted to others.
Thus, the impact and incidence of indirect taxes are on different persons. In
other words, indirect taxes are those taxes who's initial burdenor impact is on
one person but he succeeds in shifting the burden to another person. Hence in
the case of indirect taxes, the tax payer is not the tax bearer. Commodity
taxes are generally indirect taxes as they are imposed on the producers or
sellers, but their incidence fails upon the consumers as such taxes are wrapped
up on the prices.
Merits Of Indirect Tax :-
1. Convenient
:- Indirect taxes
are more convenient to pay. These taxes, generally being commodities are
wrapped up in prices hencethe tax-payer does not feel the burden directly.
2. Less
Pinching :- The
announcement effect on indirect taxes does not provoke resentment, because they
cause less annoyance to the public as they ae not felt directly. The main merit
of an indirect tax is that it pinches the tax payer less as he is kept in the
dark about how much-tax he has paid on his total purchases.
3. Not
Easily Evadable :-
Indirect taxes are difficult to evade as they are usually merged with prices.
4. Broad
Base :- Indirect tax
are charged on commodity and thus has a broader scope than direct taxes. The
low income state of society which are exempt from direct taxes are easily
caught in the net of taxation through indirect taxes to undergo the sacrifice
according to their ability to pay.
5. Easy
To Collect :- This
type of tax is easy to collect since these are added in the price of the goods
and is paid by an individual at the time of purchase of the commodity.
6. Social
Welfare :- Heavy
indirect taxes on harmful commodities such as intoxicants, tobacco etc. serve
to improve social morale and public health as the consumption of such
commodities are against the interest of
the community.
Demerits of Indirect Tax :-
1. Unjust
And Regressive In Nature :- Indirect taxes are inequitable because they fall on all persons. It is
charged at a proportional rate on commodities of general consumption and their
burden falls more heavily upon the poor sections of the people. They are not
levied according to the principle of ability to pay.
2. Uncertainly
:- These taxes are
uncertain since the revenue to the government from these taxes depends on many
factors, that is demand for goods, volume of production etc.
3. Uneconomical
:- These taxes are
not based on the principle of economy. Much expenditure has to be incurred on
their collection.
4. No
Civic Consciousness :- These taxes do not inculcate public spirit because these taxes are
hidden in the price and the tax payer cannot know the real price of the
commodityd and the tax levied on it.
5. Discourages
Saving :- Indirect
taxes discourages savings when the people have to spend more with a rise in the
prices of commodities.
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