Direct taxation is characterized as tax imposed upon the individual who is proposed to be the last conveyor of the burden of payment. Today’s Income Tax is based on direct tax collection, or, in other words, the administration demands taxation on individual or companies. Sales Taxes implies that we are compliant to pay them by buying the thing that is being taxed. It is imposed upon a business or business-related activity, not upon people or organizations directly. You decide the amount, purchase and control your cash.
Imposing an Income Tax or any Direct Tax on residents has an impact on the formation of government policy associations whose charge is to always audit your financial balances and your accounts. You are paying the government for your security from the government.
Broadly, there are two types of impacts from Direct and Indirect Taxes that affect the customer’s life/business/income, etc. i.e. the substitution and the Income Impact.
Direct taxation is equitable for consumers because higher incomes are taxed more heavily and lower incomes slightly lesser whereas Indirect Taxes aren’t equitable, they differ from commodity to commodity. Also, direct taxes satisfy the condition of certainty because the taxpayer is certain of the amount he needs to pay, and similarly the state is certain as to how much it has to receive income from direct taxes. In indirect taxes, there is no fixation of the taxpayer which makes it unpredictable.
Disadvantages from direct taxation are that there exists a possible opportunity for taxpayers to make evasion because people in the higher income groups and never reveal their full income.
Taxation has either direct or indirect effects on almost every kind of production and distribution in recent economies and is, therefore, an important aspect of economic research. Taxes are classified according to the fact, which they are paid, and who had paid. Direct taxes are paid to the Inland Revenue by the individual taxpayer rendering to whom the tax is levied. Indirect taxes are paid by the consumer according to the goods that they are obtained.
Direct and indirect taxation have diverse impacts on the consumer, they have both advantages and disadvantages of their own.
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