Question

Distinguish between direct taxes and indirect taxes. Given an example of each.

Answer 1

Direct Tax	Indirect Tax
Direct tax is imposed directly on the taxpayer and is paid by the taxpayer directly to the government. The incidence and impact of the tax is on the same person.	Indirect tax is tax collected by intermediaries (for e.g. retailers) from the ultimate taxpayer i.e. consumers. The incidence and impact of the tax is on different persons.
Its burden cannot be transferred to other person	Its burden can be shifted from one person to onther. For e.g. manufacturer shifts the burden of tax to reatailers who inturn shift it ot consumers.
It doesn't affect the prices.	Indirect tax may affect prices, as generally consumers pay high prices which are inclusive of taxes.
For example - Income tax, property tax etc.	For example - VAT, custom duty etc.