Question

Distinguish between direct taxes and indirect taxes.

Distinguish between direct and indirect taxes, citing examples.

State three differences between direct and indirect taxes.

Answer 1

Bases of Difference	Direct Taxes	Indirect Taxes
1. Meaning	If a tax levied on the income or wealth of a person is paid by that person (or his office) directly to the government, it is called a direct tax.	If tax is levied on the goods or services of a person, collected from the buyers by another person (seller), and paid by him to the government, it is called an indirect tax
2. Incidence and Impact	It falls on the same person. Imposed on the income of a person and paid by the same person.	Falls on different persons. Imposed on the sellers but collected from the consumers and paid by sellers.
3. Burden	More income attracts more income tax. The tax burden is progressive on people.	The rate of tax is flat on all individuals. Therefore, more income; individuals pay a less and lesser portion of their income as tax. The tax burden is regressive
4. Evasion	Tax evasion is possible.	Tax evasion is more difficult
5. Inflation	Direct Tax helps in reducing the inflation	Indirect tax contributes to inflation
6. Shift ability	Cannot be shifted to others	Can be shifted to others
7. Examples	Income Tax, Wealth Tax, Capital Gains Tax, Securities Transaction Tax, Perquisites Tax	GST, Excise Duty