Question

What is the difference between impact of taxation and incidence of taxation?

Answer 1

Impact of the tax is different from the incidence of tax. Impact of taxation refers to the point of original assessment whereas incidence of tax means the ultimate point of tax burden.

Example: Suppose an excise duty is imposed on the producer of sugar. The producer then shifts this excise duty by charging an extra price equal to the excise duty from the wholesaler who in turn charges it to the retailer and finally from the customers. This means the impact of excise duty is upon the sugar producer who pays it to the government but the incidence of tax is upon who consumers who actually bear the tax burden.