Question

Mention any one difference between the impact of tax and the incidence of tax.

What is the difference between the impact and incidence of tax?

Answer 1

	Impact of tax	Incidence of tax
1.	The burden of a tax on the person who pays it to the government in the first instance is referred to as its impact.	The financial impact of a tax on the individual who eventually pays it is referred to as its incidence.
2.	Focus on who is legally obliged to pay the tax to the government.	Focus on who actually bears the economic burden of the tax after shifting.
3.	Happens at the moment the tax is levied.	Happens after the tax is shifted through market mechanisms (like price change).
4.	The key process is the imposition of tax.	A key process is the shifting and settling of the tax burden.
5.	Example: A shopkeeper is required to pay GST to the government.	Example: The shopkeeper raises product prices, making consumers ultimately bear the GST burden.