Question

Explain any five demerits of direct tax.

State two demerits of direct taxes.

Mention three demerits of direct taxes.

Mention two demerits of direct taxes.

Answer 1

1. Unpopular: Since these taxes are directly imposed on people and cannot be shifted onto others, they are painful to the taxpayers. They are not popular among the people and therefore are generally opposed by the taxpayers.
2. Inconvenience: The main drawback of direct taxes is that they cause a lot of inconvenience to the taxpayers. The taxpayers have to maintain accounts to the satisfaction of tax authorities and have to submit the statements of their income along with the sources of income from which it is derived.
3. Possibility of Evasion: There is always a great possibility of tax evasion, as these taxes are calculated on the basis of the honesty of taxpayers. That is why, a direct tax is ‘A Tax on Honesty’ In India, there is a large scale of evasion of income tax on the part of businessmen. Businessmen usually adopt wrong practices and do not show their correct income to the tax authorities.
4. Uneconomical: Direct taxes are often expensive to collect. The cost of collection is particularly heavy when the number of taxpayers is large and each taxpayer pays only a small amount of tax. For example, in India land revenue is collected from millions of farmers in small amounts of money.
5. Narrow in Scope: Direct taxes are generally imposed on the rich people. Low-income group people cannot be approached through these taxes. In this way, they have their limited applicability.