Taxes are broadly classified under two heads(1) Direct Taxes and (2) Indirect Taxes. Advantages of direct taxes over Indirect Taxes are given in later section. First, both the heads (Direct Taxes and Indirect Taxes) are described shortly in below section.
Direct taxes are those taxes which are paid by the persons on whom they are levied. The burden of such taxes cannot be shift to anybody else. These taxes are levied generally on income or wealth of the person. Income tax, wealth tax or gift tax are the examples of direct taxes which enhanced the Advantages of Direct Taxes over Indirect.
Indirect taxes, on the other hand, may be defined as those taxes which are levied on commodities either on their production or sales. The incidence of such taxes can be shifted to other persons and, therefore, these taxes are ultimately not paid by persons on whom they are levied. For example, excise duty or sales tax are indirect taxes.
The liability for their payment is on the producers or sellers but they are shifted to consumers by adding the value of these taxes to the prices of the commodities to be paid by the purchasers.
Thus, distinction between these two type of taxes is that of ‘impact’ and ‘incidence’. If impact and incidence of a tax both are on the same person, the tax is direct tax and where the impact and the incidence are on different persons, the tax can be termed as indirect tax. Here impact of tax means the liability of a person to pay the tax in the first instance and incidence means ultimate burden of the tax finally.
What Are The Advantages of Direct Taxes ?
Following are the chief advantages of direct taxes-
(1) Equitable. Direct taxes are based on the principle of equity since they are charged according to the level of income of persons which determines the ‘ability to pay’ of the persons. The richer a person. the greater is the burden of direct tax on him. As against this, persons who do not have much income are totally exempt from tax.
(1) Economical. No strenuous expenditure is required in collecting the direct taxes. In this sense they are economical. A direct tax like income tax is collected at source in case of salaried person.
(3) Certainty. Direct taxes satisfy the cannon of certainty. The government and the tax payer both know fairly definitely what amounts are to be collected and paid the tax payers can make provision to pay the taxes in advance.
(4) Civic Consciousness. Direct taxes create civic consciousness. The person who pays it, is very much conscious to know how the funds provided by direct taxes are being utilized by the government. He immediately becomes conscious about his rights.
(5) Elastic. Direct taxes are elastic in. the sense that slight adjustment in rates, the revenue to be collected may be increased or decreased to a great extent. In crisis, the rates of these taxes adjusted.
