Question

Consider the following statements with respect to taxation :

1. In direct tax, incidence and impact of tax is on the same person/entity.
2. In indirect tax, incidence and impact of tax is on different person/entity.

Which of the above statement/s is/are correct ?

• A. 2 only
• B. 1 only
• C. Both 1 and 2
• D. None of the above

Answer 1

The correct option is C Both 1 and 2

<!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--> Tax revenue comes from two categories - Direct Taxes and indirect taxes.

Direct taxation is a type of tax which is paid for by an individual directly to the government. It includes income tax,corporate tax etc.So incidence(responsibility) and impact(end burden) is on the same person.

Direct taxation contrasts with an indirect tax, which is imposed on a transaction and paid to the government by the firm after the goods have been bought.But ultimately the tax amount is passed on to the consumers in form of higher prices. Goods and Service Tax(GST) is an example of indirect tax.So incidence(responsibility) and impact(end burden) is on different person.