Direct and Indirect taxes

Direct and Indirect taxes:

According to Dalton, “A direct tax is one that is actually paid by a person on whom it is imposed while an indirect tax, although imposed on a person, is partially or wholly paid by the other”.

In the situation of a direct tax, the tax payer who pays direct tax is as well the tax bearer. In the condition of indirect taxes, the taxpayer and the tax bearer are dissimilar persons.

Direct taxes:

Direct taxes are composed from the public directly. That it is to say, such taxes are imposed on and collected from similar person. One can’t evade paying the tax when it is imposed on him.

Income taxes, corporate tax, wealth tax, gift tax, estate duty, expenses tax are good illustrations of direct taxes.

Indirect taxes:

Taxes imposed on commodities and services are referred as indirect taxes. There is a chance for moving the burden of indirect taxes. The incidence is upon the person who eventually pays it. Illustrations of indirect taxes are customs duties, excise duties, and sales taxes (i.e., commodity taxes).

The classification of direct and indirect taxes depends on the criterion of shifting of the incidence of tax. The burden of a direct tax is bear by the person on whom it is levy. For illustration, income tax is a direct tax. Its burden falls on the person who is accountable to pay it to the Government. He can’t transfer the burden to some other person.

An indirect tax is primarily paid by one person however eventually the burden of the tax is completely or partially borne by the other person. Since there is a possibility of transfer of burden of an indirect tax. For illustration, the excise duty on a motor-bike is primarily paid by the manufacturer. However he subsequently shifts this burden to the consumer by involving the tax in the price of the bike. Approximately, we might say that the direct taxes are paid by the rich and the indirect taxes are paid by poor.

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