Question

What are the merits of an indirect tax?

Give two advantages of indirect taxes.

Mention three merits of indirect taxes.

Explain three merits of indirect taxes.

Explain any one merits of indirect tax.

Give two merits of indirect taxes.

State and explain any five merits of Indirect taxes.

Answer 1

1. Broad coverage: In the case of a tax on a commodity, all the buyers of the commodity have to pay an indirect tax irrespective of their income level, whether they belong to high-income groups or low-income groups. By widening the tax net, the government can yield more revenue for public expenditure.
2. Convenient: Indirect taxes are paid in small portions at regular intervals. It is not a burden to the taxpayer, as it is included in the price of the commodity.
3. Equity: Indirect taxes can be made more equal by placing high taxes on luxury goods purchased by wealthy individuals and low taxes on necessities. As a result, using the ability-to-pay principle can make indirect taxes more egalitarian.
4. Elastic: Indirect taxes can be made elastic and productive, particularly when they are imposed on essential goods whose demand is inelastic. So, the revenue of the government can increase by imposing the tax on such commodities.
5. No evasion: Indirect taxes are to be evaded, as they are included in the price of the commodity. A person can evade indirect tax only when he decides not to purchase the taxed commodity.
6. Social Welfare: Indirect taxes can help to promote social welfare. Heavy indirect taxes on items that are undesired and harmful to health, such as alcohol and cigarettes, may limit usage by boosting their prices. Reduced consumption of damaging items improves social welfare.