if you are appointed as a finance minister of India , which taxes would you prefer as a source of Revenue between Direct Taxes and Indirect Taxes . Justify your Answer
Answers
Answer:
Direct taxes are taxes on incomes whereas indirect taxes are taxes on spending (ex: GST)
Indirect taxes are regressive rather than progressive, although reducing direct taxes and filling the void with indirect taxes increases the incentive to work, productivity and tax evasion, the void is here is being filled by the poor because the indirect taxes are not based upon the individual's ability to pay. As a finance minister I aim for the redistribution of income (equity).
However, India is a country where majority of workers are either experienced disguised unemployment or are working in the informal sector, the multitude of uneducated workers may not understand how to fill the taxes, therefore obtaining revenue from direct taxes is harder in taxes, there is a real risk of tax evasion and undeclared income. So, even though it is regressive as a finance minister, I'd go for the indirect taxes but I would classify goods in such a way that necessities are under the lowest bracket and luxuries are on the highest to reduce the stress on the poor. There are numerous advantages to indirect taxes than just this.
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