Question

Long answer type questions:
Explain the basis of classifying taxes into direct and indirect tax. Give two examples of each.

Answer 1

Taxes are classified as direct and indirect depending on their 'final burden'.

A direct tax is the one the final burden of which is borne by the person on whom it is imposed. Example: income tax and wealth tax.

An indirect tax is the one the final burden of which can be shifted to other persons. Example: sales tax and goods and services tax.