Indirect Taxes Ultimate burden of tax payment Ultimate burden of tax payment: purchaser Responsibility to pay tax Example: Income Tax Example: GST When you earn income, you are responsible for tax payment, and you also have the burden When you buy stuff, the shopkeeper is responsible for tax payment, but he can collect it from you Responsibility to pay tax: shopkeeper rate of tax or the time of payment. If the Government collects taxes arbitrarily, then these will adversely affect the efficiency of the people and their working ability too. .Canon of Convenience The method of tax collection and the timing of the tax payment should suit the convenience of the people. The Government should make convenient arrangement for all the tax payers to pay the taxes without difficulty.
.Canon of Economy The Government has to spend money for collecting taxes, for example, salaries are given to the persons who are responsible for collecting taxes. The taxes, where collection costs are more are considered as bad taxes. Hence, according to Smith, the Government should impose - - Fiscal Economics . .
. Merits of Direct Taxes .Equity Direct taxes are progressive i.e. rate of tax varies according to tax base. For example, income tax satisfies the canon of equity.
.Certainty Canon of certainty can be ensured by direct taxes. For example, an income tax payer knows when and at what rate he has to pay income tax. . Elasticity: Direct taxes also satisfy the canon of elasticity.
Income tax is income elastic in nature. As income level increases, the tax revenue to the Government also increases automatically. . Economy The cost of collection of direct taxes is relatively low.
The tax payers pay the tax directly to the state. . . .
Demerits of Direct Taxes .Unpopular Direct taxes are generally unpopular. It is inconvenient and less flexible. . Productivity affected According to many economists direct tax may adversely affect productivity.
Citizens are not willing to earn more income because in that case they have to pay more taxes. . Inconvenient The tax payers find it inconvenient to maintain accounts, submit