Question

Differences between direct taxes and indirect taxes

Answer 1

A. Direct Tax

Direct tax is paid directly by an individual or organization to an imposing entity like government

Direct Taxes are based on the ability-to-pay principle, which means that if you earn more, your rate of tax is also more.

The purpose of Direct Tax is to redistribute the wealth of a nation (taking from rich, thus making them poorer)

Direct taxes cannot be passed on to a different person or entity;

The individual or organization upon which the tax is levied is responsible for the fulfillment of the full tax payment.

It is considered to be progressive tax since you taxe depending upon the ability of the taxpayer to pay

B: Indirect Tax

An indirect tax is a tax that is shifted from one taxpayer to another i.e. collected by one person but actually born by another person

An indirect tax is levied on goods or services, which increases the price of a good or services

The tax is actually paid by the end consumer, by way of a higher retail price.

Indirect taxes are levied equally upon all taxpayers irrespective of their income.

Indirect taxes are passed on, as the price of the tax is compensated for by simply increasing the overall price of the good or service.

It is considered to be a regressive tax since all taxpayers whether rich of poor have to bear the same burden.