A person has two options to pay taxes – direct tax or indirect tax. The former is more common and requires a payment on a per-unit basis, while the latter is more inclusive and requires a payment on a per unit basis. The direct tax is paid by the assessee directly, whereas the indirect one falls on an intermediary. Both types of taxes are used to finance public services and improve public welfare, but they have slightly different purposes.
Indirect taxes are more difficult to collect and are usually applied to imported goods and services. The primary disadvantage of an indirect tax is that it does not discriminate between rich and poor. Since these taxes are generally incorporated into the price of goods and services, the cost is passed on to consumers without a distinction. People who make a lot of money pay higher amounts of indirect taxes than those who earn less. Indirect taxes are more likely to increase the price of goods and services, resulting in an increase in the price of goods and service.
Indirect taxes are more effective in addressing inflation. Inflation is the increase in prices of goods and services over a period of time. This signifies a deterioration of the purchasing power of the currency. Indirect taxes tend to increase the price of goods and services, but they make them more affordable for everyone else. While direct taxes affect people in the highest income brackets, indirect taxes affect everyone who purchases goods and avails of services.
Direct taxes are more effective than indirect taxes in the long run. While direct taxes reduce earnings and save money for the future, indirect taxes raise costs for the end consumer. Indirect taxes also contribute to inflation, but they are more expensive than direct ones. If you have to pay both types of taxes, it makes more sense to lower your tax burden if you can. However, remember that you have to pay the government taxes in the end.
Indirect taxes are more effective in reducing inequality. They are more efficient than their counterparts. They are not easily evaded, and are easy to collect. Moreover, they are less expensive to administer. Indirect taxes are more difficult to evade because they are already embedded in the price of goods and services. A person who doesn’t pay taxes can’t get a good job. Indirect taxes are more expensive than direct taxes.
Direct taxes are easier to collect. They are based on the notion of ability to pay. A person who earns more than someone who is poor pays more in taxes. The same is true for indirect taxes. Indirect taxes are not progressive and are not a fair way to tax the economy. By increasing income, you’re penalized for spending more than you earn. If you earn more than the other guy, you’ll pay more in indirect taxes.