State the basic difference between direct and indirect taxation. Give an example.
While the impact of indirect taxation (like sales tax) can be shifted on to others, the impact of direct taxation (like income tax) cannot be shifted.
Example: A shopkeeper pays sales tax to the government but usually recovers it from the customers as a part of price of the commodity sold. So, impact of sales tax (an indirect tax) is ultimately shifted to the consumers. But the impact of income tax is to be finally borne by the taxpayer himself. He cannot shift its burden on to others.