(a) Differentiate between direct and indirect taxation
(b) Highlight any five advantages of indirect taxation to developing countries
Explanation
(a) Direct taxation refers to taxes on incomes and properties of individuals and organizations e.g. personal income tax, profit tax. On the other hand, indirect taxation refers to taxes on goods and services e.g. excise duties, custom duties etc.
(b)(i) In developing countries where incomes are generally low, indirect taxes yield more revenue to the government.
(ii) where unemployment is high, indirect taxes yield more revenue.
(iii) it is cheap and easy to collect, e.g. custom duties.
(iv) it has a wider coverage to collect, e.g. custom duties
(v) it is not easy to evade. Consumers pay as they consume the commodities
(vi) it is not a disincentive to work.
(vii) it used to discourage consumption of harmful goods.
(viii) it used to protect infant industries.
(ix) it used to correct balance of payments deficit.
(x) it used to prevent dumping.