What are the purposes of direct and indirect taxation?

What are the purposes of direct and indirect taxation?

While direct taxes are imposed on income and profits, indirect taxes are levied on goods and services. A major difference between direct and indirect tax is the fact that while direct tax is directly paid to the government, there is generally an intermediary for collecting indirect taxes from the end-consumer.

What’s the difference between direct tax and indirect tax?

Taxes can be either direct or indirect. A direct tax is one that the taxpayer pays directly to the government. These taxes cannot be shifted to any other person or group. An indirect tax is one that can be passed on-or shifted-to another person or group by the person or business that owes it.

How direct and indirect taxes are complementary to each other?

Direct taxesinclude the taxes that cannot be transferred or shifted to anotherperson, for instance the income tax an individual pays directly to thegovernment. Indirect taxes are those paid by consumers when they buy goods and services.

Why indirect taxes are regressive?

Poor people earn a lower income than the rich people but both have to pay indirect taxes. Thus the proportion of the tax burden is more on poor people than the rich for taxes. Hence, indirect taxes are regressive in nature.

What is the difference and similarities between direct and indirect tax?

Direct tax is levied and paid for by individuals, Hindu undivided Families (HUF), firms, companies etc. whereas indirect tax is ultimately paid for by the end-consumer of goods and services. The burden of tax cannot be shifted in case of direct taxes while burden can be shifted for indirect taxes.

Why is taxation an inherent power of government?

It is inherent in sovereignty – the power of taxation exists independent of any legislation. There is no need to enact a law to exercise that power because that power springs at the moment you have the existence of the state. This is inherent because this is based on necessity. Taxation is the life-blood of government.

Why taxation is an inherent power of the state?

Taxation is an inherent power of the state not only for purposes of raising revenues but also to distribute equally the wealth of the nation and protect certain industries by granting exemptions. This is so because it is the primordial duty of the State to alleviate the lives of the people from poverty.