Question

Explain in brief two merits of direct tax.

Give two merits of direct tax.

Answer 1

1. Economy: Direct taxes are economical in the sense that the cost of collection of these taxes is relatively low, because the same officers who assess small income or properties can also assess large income or properties. Moreover, the tax-payers make the payment of these taxes direct to the government.
2. Equity: Direct taxes are based on the principle of ability to pay (or principle of progression). So the burden of a direct tax is equitably distributed on different people and institutions. They fall more heavily on the rich than on the poor.
3. Certainty: Direct taxes are certain. The taxpayer knows how much tax is due from him and when, so he can adjust his income and expenditure. The government also knows fairly well the amount of revenues coming to it by way of direct taxes and can adjust its income and expenditure.
4. Elasticity: Another merit of direct taxes is that they are based on the canon of elasticity. These taxes are elastic in nature, as the government revenue can be increased by raising the tax rates in times of crisis. Moreover, the yield from direct taxes goes up automatically with an increase in the income of the people.
5. Civic Consciousness: Direct taxes create a spirit of civic responsibility amongst the taxpayers. Since the taxpayers provide the funds from their own pockets to the government, they take keen interest in seeing that these funds are properly utilised. This public awareness plays an important role in checking the wastage of public expenditure.
6. Reduction in Inequalities: As direct taxes are progressive in nature, rich people are subjected to higher rates of taxation, while the poor are exempted from direct taxes. Hence, these taxes help in removing inequalities of income.