Question

(i) Define Tax. 
(ii) Give three differences between direct taxes and indirect taxes.

Answer 1

(i)

A tax is a legally compulsory payment imposed by the government.

(ii)

The main differences between direct tax and indirect tax are given below :

Direct Tax	Indirect Tax
1. Final Burden The burden of the direct tax falls on the person who makes the payment to the government.	1. Indirect taxes are those which are paid to the govt. by one person but their burden by another person.
2. Shifting of a Tax Direct taxes cannot be shifted.	2. Indirect taxes can be shifted to other persons.
3. Progressiveness Direct taxes are generally progressive. Their real burden is more on the rich.	3. Indirect taxes are generally regressive. Their real burden is more on the poor.
4. Example Income tax and corporate profit tax.	4. Sale tax, VAT, (value-added tax.