Question

State three demerits of an Indirect tax.

Explain briefly two demerits of indirect tax.

Give two disadvantages of indirect taxes.

Mention three demerits of indirect taxes.

Explain any two demerits of indirect tax.

Answer 1

The following are the demerits of indirect taxes:

1. Regressive: The primary disadvantage of indirect taxes is that they are regressive and, so, unjust. Indirect taxes are typically levied on the consumption of products. The tax rate for such taxes is uniform for both the rich and the poor. They are indiscriminate, meaning that poor people must pay the same as wealthier ones. They ignore the principle of ability to pay, and as a result, their burden falls disproportionately on the poor, who have a lower ability to pay than the wealthy. This renders them regressive in character. When an indirect tax is placed on needs, the burden falls disproportionately on the poor. As a result, these taxes are unfair to the poor and inequitable.
2. No Civic Consciousness: Indirect taxes do not create civic consciousness among the taxpayers because they are imposed on commodities and hence the taxpayers do not feel at all that they are paying the tax.
3. Uncertain: Another great demerit of indirect taxes is that they are extremely uncertain. Taxes on goods with elastic demand are very uncertain. When a commodity is taxed, its market prices rise, which results in lower demand. So it is quite difficult to anticipate the income from indirect taxes. However, indirect taxes can be made certain if they are imposed on necessities of life. But such taxes will become regressive and hence unpopular.
4. Discourage Savings: Indirect taxes discourage savings as they are included in price. People have to spend more on commodities. Hence, they discourage savings.