Question

Explain direct taxes and give its advantages and disadvantages.

Answer 1

A direct tax is paid directly by an individual or organization to the imposing entity. A taxpayer, for example, pays direct taxes to the government for different purposes, including real property tax, personal property tax, income tax, or taxes on assets.
Advantages of Direct Taxes:
(i) Economical - Direct taxes are economical in the sense that the cost of collecting these taxes is relatively low as they are usually collected at source and they are paid to the government directly by the taxpayers.
(ii) Certainty - Direct taxes satisfy the canon of certainty. The taxpayers know how much they have to pay and on what basis they have to pay. The government also knows fairly, definitely the amount of tax revenue it will receive. Thus, direct taxes satisfy the canon of certainty.

Disadvantages of Direct Taxes:
(i) Unpopular - Direct taxes are directly imposed on individuals. They cannot be shifted. Taxpayers feel their pinch directly. They are not popular among the people.
(ii) Possibility of Tax Evasion - Direct taxes encourage tax evasion. People conceal their income from the tax officials so as to pay fewer taxes. In India, there is large-scale evasion of income tax on the part of businessmen. They adopt fraudulent practices to save themselves from paying taxes.