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What is the Difference Between Direct Tax and Indirect Tax? - Economics

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What is the difference between direct tax and indirect tax?

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Solution

  Direct Tax Indirect Tax
1 It is imposed on the income of a person based on the principle of ability to pay. The income tax burden is equitably distributed on different people and institutions. Thereby the tax burden falls more on the rich than on the poor. It is imposed on an individual but is paid by another person either partly or wholly. Hence, the impact and incidence of taxes are on different persons.
2 Tax burden cannot be shifted to another person. Tax burden can be shifted to another person.
3 Prices are not affected. Prices are affected because the price of the product is inclusive of tax.
4 Examples:- Income and property tax Examples:- Union excise duties and custom duties
Concept: Direct and Indirect Tax
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