Define a tax. Explain briefly two merits and two demerits of direct taxes.
The taxation system is an important concept in the economy of a country. In order to run the government and manage the affairs of a state, money is required. So the government imposes taxes in many forms on the incomes of individuals and companies.
Classification of Taxes
Broadly taxes are classified into two classes:
1. Direct Taxes
2. Indirect Taxes
A direct tax can be defined as a tax that is paid directly by an individual or organization to the imposing entity (generally government). A direct tax cannot be shifted to another individual or entity. The individual or organization upon which the tax is levied is responsible for the fulfilment of the tax payment.
The Central Board of Direct Taxes deals with matters related to levying and collecting Direct Taxes and formulation of various policies related to direct taxes.
A taxpayer pays a direct tax to a government for different purposes, including real property tax, personal property tax, income tax or taxes on assets, FBT, Gift Tax, Capital Gains Tax, etc.
Following are the merits of direct tax
Following are the demerits of direct tax
Indirect tax definition
The term indirect tax has more than one meaning. In the colloquial sense, an indirect tax such as sales tax, a specific tax, value-added tax (VAT), or goods and services tax (GST) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer).