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Question

With reference to the taxation policy, mention three differences between direct taxes and indirect taxes.

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Solution

Direct tax Indirect tax
Direct tax is paid by individuals, firms, companies etc. Indirect tax is ultimately paid for by the end-consumer of goods and services.
The burden of tax cannot be shifted in case of direct taxes. Burden can be shifted for indirect taxes.
Lack of administration in collection of direct taxes can make tax evasion possible.Indirect taxes cannot be evaded as the taxes are charged on goods and services.
Direct tax can help in reducing inflation. Indirect tax may enhance inflation.

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