Explain Merits And Demerits Of Indirect Taxes.


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Haider Imtiaz answered
Indirect tax: If impact of tax falls on one person and incidents on another, tax is called indirect tax e.g. Sales tax, excise duty etc.

Merits of indirect taxes:

1. Convenient: People pay these taxes when they buy a commodity and they buy a commodity at a time when they can afford.

2. No Evasion: The indirect tax is mixed up with the price of the commodity which is purchased by the people. Therefore, it is difficult to evade an indirect tax.

3. Equitable: The luxuries are generally taxed at a higher rate as compared to basic necessities. Therefore, indirect taxes are made more equitable by imposing on articles consumed by the rich.

4. Elastic: Indirect taxes can be varied according to the needs of the state. These are imposed on necessaries of life for which the demand is in-elastic.


1. Uncertain: The state cannot correctly estimate as to how much money it will receive from a tax. Further imposition of a tax will increase price of a commodity which will lead to fall in its demand.

2. Regressive: Indirect taxes are regressive. Every consumer of a taxed commodity, rich or poor pays the fax at the same rate. The real burden of the tax on the poor is greater than on the rich.

3. No civic consciousness: No body feels that he is paying a tax as it is concealed is price. Therefore, no civic consciousness can be developed in the tax-payer.

4. Uneconomical: The taxed commodity passes through a number of middle men which add some thing to the tax. A high paid staff of custom officials, appraisers raiding parties' etc. Also increase the cost of collection. Therefore, these taxes are uneconomical.

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