returns and pay tax in lump sum. . Tax Evasion The burden of direct tax is so heavy that tax-payers always try to evade taxes. This ultimately leads to the generation of black money, which is harmful to the economy.
. . . Indirect Tax Indirect Tax is referred to as a tax charged on a person who purchases the goods and services and it is paid indirectly to the government.
The burden of tax can be easily shifted to the another person. It is levied on all persons equally whether rich or poor. There are several types of Indirect Taxes, such as: Excise Duty: Payable by the manufacturer who shifts the tax burden to retailers and wholesalers. Sales Tax: Paid by a shopkeeper or retailer, who then shifts the tax burden to customers by charging sales tax on goods and services.
Custom Duty: Import duties levied on goods from outside the country, ultimately paid for by consumers and retailers. Entertainment Tax: Liability is on the cinema theatre owners, who transfer the burden to cinema goers. - - Fiscal Economics Service Tax: Charged on services like telephone bill, insurance premium such as food bill in a restaurant etc. .
. . Merits of Indirect Taxes ( ) Wider Coverage All the consumers, whether they are rich or poor, have to pay indirect taxes. For this reason, it is said that indirect taxes can cover more people than direct taxes.
For example, in India everybody pays indirect tax as against just percent paying income tax. ( ) Equitable The indirect tax satisfies the canon of equity when higher tax is imposed on luxuries used by rich people. ( ) Economical Cost of collection is less as producers and retailers collect tax and pay to the Government. The traders act as honorary tax collectors.
( ) Checks harmful consumption The Government imposes indirect taxes on those commodities which are harmful to health e.g. tobacco, liquor etc. They are known as sin taxes. ( ) Convenient Indirect taxes are levied on commodities and services.
Whenever consumers make purchase, they pay tax along with the price. They do not