Everyone pay at rate commensurate with their earnings, and so both the taxpayer and the government can estimate what the bill will be. 2. Direct taxation is a type of tax which is paid for by an individual directly to the government. Since direct taxes behave this way, they are considered more equitable. They Cause Less Squabbles They are not collected with force and therefore, cause no or less friction. He ‘squeaks’ when a lump sum is taken out of his pocket. Direct taxes are helpful to the tax payer in terms of getting himself prepared andfor planning. Direct taxes also reduce the capital available for companies to re-invest in their companies. Before publishing your Articles on this site, please read the following pages: 1. One of the biggest disadvantages of direct tax is that it encourages people not to work hard since direct taxes are normally progressive in nature, meaning the more income you make, the … The tax liability cannot be passed onto someone else Indirect taxes – include VAT and excise duties. (3) Possibility. 3. Their Collection is Less Difficult This is in comparison with direct taxes; because the real tax payers of these forms of tax do not realise that they are paying taxes when they buy goods and services on which these taxes are imposed. They May be Used to Comb… These taxes encourage tax evasion. The advantages of imposing a tax on earnings can include the following: Theoretically, people who make less also pay less when earnings are taxed, rather than consumption. Another virtue of direct taxes is that they are very productive. This makes it easier for both to budget. As mentioned above, one good example of direct taxes is a person’s income tax. If the taxes are too heavy, they discourage saving-sand investment. How does direct tax cause a disincentive to work hard? Thus, both are bad. This cannot be achieved- by taxes on commodities which fall with equal force on the rich and the poor. Privacy Policy3. Progressive taxes have so many advantages. The direct taxes yield a large revenue to the State. This leaves them with very little money for re-investing. The direct- taxes are thus very inconvenient to pay. Direct and indirect taxes have advantages of their own. One of the biggest disadvantages of direct taxes – especially high direct taxes is the fact that it has the tendency to discourage people from working hard. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. There is social justice in the allocation of tax burden in case of direct taxes as they are based on the principle of ability to pay. Direct taxes are taxes that are levied on the income or wealth of a person or company. In the long run this negatively affects the national income. Direct Tax. Direct taxes are transparent taxes, which means that the person paying the tax knows exactly how much is taken and to which specific agency it goes. Moreover, you tend to feel more socially aware and … Direct tax is equitable as it is imposed on a person as per the property or income. (Post continues after the photo.) 5. Persons in a similar economic situation are … Transparency. For example, direct taxes collected through the. There are many advantages and disadvantages associated with the direct tax, and that is what this article shall focus on. Examples of income tax, corporate tax, wealth tax, and Capital Gains Tax are given below. Welcome to EconomicsDiscussion.net! What are the advantages of Direct Taxes in India? A high level of taxation discourages investment and enterprise in the country. TOS4. What many people are not aware of is that practically everyone pays taxes, especially indirect taxes. I participate in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com. It inflicts a lot of damage, on business and industry. Here are some of the types of indirect taxes. As an Amazon Associate I earn from qualifying purchases. The assessee can submit a false return of income and thus evade the tax. Taxpayers feel burden of tax and so they can insist the government to spend their contributions for the welfare of the community. Company tax is any tax that is levied on the profit of a company. Accountants and experts with negative minds can easily doctor certain figures (profits, income, etc) in order to reduce the tax rate imposed or in order to avoid paying the tax all together. The authorities also know the amount of revenue they can expect. The tax raises the price of the commodity, and the price of a commodity is the same for every person, rich or poor.