Explain Merits And Demerits Direct Taxes?

Direct Taxes: Tax is said to be a direct when the impact and incidents of a tax are on one and the same person. That is when a person on whom tax is levied is the same who finally bears burden of tax. He cannot shift its burden to some other person.

For example; if a person pays income tax, he has to bear its burden and he cannot shifts its burden to some other person. Therefore, it is a direct tax.

Merits of Direct Tax:

(A) Equitable: Direct taxes are impose that a progressive rate. Therefore, these are more equitable. The richer has to pay more as compare to the poorer.

(B). Economical: The cost of collection of direct taxes is small. There is no intermediary between the tax payer and the state. Therefore, these taxes are economical.

(C) Certain: The direct taxes are calculated with the fair degree of precision. The tax payer is certain of the amount that he has to pay while government is also certain about its revenues.

(D) Elastic: Direct taxes have a high degree of elasticity. There rate can be change according to the needs of the country.

Demerits:

(A) Inconvenient: The direct tax is paid in a lump-sum which is difficult to pay at a time. Therefore, direct taxes are very inconvenient to pay.

(B) Unpopular: To part with money is not an easy thing for a tax payer. Therefore, these taxes are very unpopular.

(C) Arbitrary: The rates of taxes are not determined on any specific principle but the rate of taxes is fixed arbitrarily by the government.

Direct tax:
Merits
1. Easy to collect as it is fixed and collected directly from source.
2. It dirctly affects the purchasing power of the people so it is an instrument in the hands of the government to reduce liquidity.
3. Makes people more responsible as they know that the public spending is because of the amount paid by them as tax.
4. It has an element of certainity in it as the government is able to know who paid the tax and who evaded it.
5. No intermediary is there so there are less chances of corruption.

Demerits:
1. They are quite unpopular among the people because a large part of their income goes in a single wave.
2. Rates of taxes are fixed arbitrarily by the government. It does have a proper ratinale behind it.
3. It is easier for people to evade taxes so less tranparency in the system.