(a) Distinguish between direct and indirect taxes.
(b) What are the advantages of direct taxes?
Explanation
(a)Direct taxes are imposed directly on individuals or organisations by the government or its agency (e.g. company ji profit tax) while indirect taxes are levied on goods and services, e.g. sales.tax, excise duty etc.
(b) The advantages of direct taxes are:
(i) They are progressive. This means they are usually administered with a graded scale and are both progressive and equitable.
(ii) They are non-inflationary. They do not increase prices and, therefore, are not inflationary because money is taken from consumers and their purchasing power is thereby, reduced.
(iii) The poor pay less or are exempted.
(iv) Inequalities in income can be reduced by direct taxes.
(v) It is easy to estimate revenue from direct taxes.
(vi) Tax liability is certain, as payers know what they have to pay.