528328), with its company registered address at 69 Wilson Street, London, EC2A 2BB, UK. Let us now turn our attention to the topic for the day, which is the advantages and disadvantages of indirect tax. You have entered an incorrect email address! More often than not, the consumer doesn’t know the proportion of the price of the goods or services that represents tax. 2- Lack of a sense of taxpayer and thus reduce tax evasion. Indirect taxes on necessaries yield a large revenue, because people must buy these things. The cost of collection is quite heavy. Share Your PPT File, Business: Meaning, Definitions, Characteristics, Objectives, Scope and Growth Strategies. Direct taxes have the following advantages in their favour: ADVERTISEMENTS: (i) Equitable: The burden of direct taxes cannot be shifted. Equiti Group Limited Jordan is a registered trading name in Jordan (Registration Number. A fraction of the money unit cannot be calculated, so ever middleman tends to charge more than the tax. Basically what indirect tax does is that it increases the prices of goods and services.
It is convenient to the State as well which can collect the tax at the ports or at the factory. For a smoker on low-income (£10,000), this will be a high percentage of income 10%. The tax-payers do not feel the burden much, partly because an indirect tax is paid in small amounts and partly because it is paid only when making purchases. They are very elastic in yield, if imposed on necessaries of life which have an inelastic demand. Before publishing your Articles on this site, please read the following pages: 1. Indirect Taxes are Regressive: An important criticism of indirect taxes is that they are regressive, that is, people with lower incomes bear a higher burden as compared to the rich people.
Nowadays, when the state functions are multiplying, substantial amounts are required for the discharge of its multifarious activities. Indirect taxes can be spread over a wide range. Since indirect taxes are placed on only goods and services, they are only paid for when a consumer buys such goods or services. The impact and incidence of a direct tax is on the same person, that is intended to bear the burden cannot shift it to another person. 3- unfair to some because the rich and the poor are buying goods at the same price. 4. When a tax is regressive, what happens is that the poor pay higher proportion of their income as tax or they pay the same amount of tax … Signs of Hormonal Imbalance and What to Do About It, 5 Types of Female Sexual Dysfunction and What to Do About Them, 5 Camping Essentials You Need to Have On Your Next Trip, Everything You Need to Know About Benchtop Jointers, advantages and disadvantages of indirect tax, Advantages and Disadvantages of Direct Tax. Margined Forex and CFD trading are leveraged products and can result in losses that exceed deposits. The government therefore generates a lot of revenue from indirect taxes. What many people are not aware of is that practically everyone pays taxes, especially indirect taxes. Knoji reviews products and up-and-coming brands we think you'll love. Briefly speaking they are as under:— 1. Content Guidelines 2. Indirect taxes have some disadvantages too, which are as follows: Indirect taxes are not equitable. As indirect taxes can be spread widely, they are more beneficial and suitable.
The tax will raise the price and contract the demand. Their relative importance depends on a number of factors, such as distribution of income, nature of the economic system, the stage of economic development, etc. He is an honorary tax collector. The money collected from these sources constitute a substantial portion in a country’s budget in a particular period of time.
They are levied on locally made goods taken to other countries. With direct taxes, it is very difficult for people to evade tax or avoid paying tax unlike in an indirect tax where a person can evade it by just deciding not to consume items or products that are taxed. $.post('http://auditor101.com/wp-admin/admin-ajax.php', {action: 'mts_view_count', id: '634'}); The poor are always exempted from paying direct taxes. Checking The Production And Consumption of Harmful Goods. They are very elastic in yield, imposed on necessaries of life which have an inelastic demand. Indirect taxes can be used to control the consumption of certain harmful goods. Excise Duties These are levied on locally made goods. Indirect taxes tend to take a higher percentage of income from those on low income. An indirect tax is one of the two types of taxes that we have. Examples of direct taxes are income tax, corporation tax,(company tax) capital gain tax, national duties(inheritance tax), CRTV tax, national social insurance. It can be defined as any tax that is not levied directly on the income of an individual, but on the goods and services that the individual consumes. Unlike the direct tax which is limited to only income earners, indirect tax does not limit itself to only a specific group of people. They cause the price of an article to rise b; more than the tax. The payers of these taxes do not bear their final brunt. Advantages of Direct Taxes. Indirect tax is a type of tax, which is collected for the benefit of the government through an intermediary. Payment of indirect taxes has no exemption so long as everybody buys the goods on which taxes are imposed; therefore, no favouritism in their payment.
Maduawuchi is an editor on Nigerian Infopedia and the founder of Nigerian Guide. When imposed on luxuries or goods consumed by the rich, they are equitable. This is in comparison with direct taxes; because the real tax payers of these forms of tax do not realise that they are paying taxes when they buy goods and services on which these taxes are imposed. This is another very big disadvantage of the indirect tax. Indirect tax constitutes a very huge source of revenue for government since the tax net covers a much wider area.
This is the reason why indirect tax is considered a huge source of revenue for governments all over the world. But the convenience is even greater due to the fact that the tax is "price-coated". Also known as tariffs, they are imposed on foreign made goods coming into a country. Consumer tax: The first type of indirect tax, which is an alternative to income, where this type of taxation is imposed on individuals when spending or consumption such as telephone, Internet, transports fees, etc. Indirect taxes and direct taxes differ in many ways, but the most common is how they are paid. Advantages of Indirect Taxes. Collection takes place automatically when goods are bought and sold. Indirect taxes have advantages of their own. 4. They are not collected with force and therefore, cause no or less friction. They are the only means of reaching the poor. 4. Disadvantages: Indirect taxes have some disadvantages too, which are as follows: ADVERTISEMENTS: (i) Regressive: Indirect taxes are not equitable. Whether a rich man buys a commodity or a poor man, the price in the market is the same for all.
2- Uneconomical because its cost is high. It is a sound principle that every individual should pay something, however little, to the State. And of course as we might all know, it can be quite difficult to determine the strength of demand for certain commodities.
Unless indirect taxes are imposed on necessaries, we cannot be sure of the revenue yield.
Another advantage associated with indirect tax is the fact that it i easy to collect. It is a sound principle that every indivi, 8 Standalone Smartwatches for Teens Without Phones, 15 Cheaper Alternatives to BodyBoss Portable Exercise Equipment, Compared, Your Guide to Off-Gassing: Why Your New Mattress Smells & 4 Brands to Avoid, 8 Online Furniture Stores That Allow You to Finance Your Purchase, The Best Eco-Friendly Mattress: A Review of Avocado Green Mattress. Advantages and Disadvantages of Indirect Taxes. It is wrapped in price. Both are necessary. All the content is approved and Tested by Professionals.
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Paying indirect tax is not as inconvenient to the tax payer as direct tax is. For example, when the government wants to discourage the consumption of a harmful good such as cigarettes, all the government does is to raise the duties (indirect tax) on cigarettes in order to increase the price. I he tax-payers do not feel the burden much partly because an indirect tax is paid in small amounts and partly because it is paid only when making purchases. Indirect taxes have advantages of their own. In such cases, only the .Veil-to-do will pay the tax. Regressive nature of indirect taxes. Hence, rich and poor pay the same amount, which is obviously unfair. 8. Another disadvantage with indirect tax is the fact that it can be very difficult for tax authorities to project exactly how much they are going to get from tax proceeds since the amount of money that is generated from indirect tax largely depends on the strength of demand for the taxed commodities.
The Professionals at AuditorForum have employed their best efforts and knowledge in developing state of the art Material that is not only easy and up-to-date but according to the latest exam requirements. This can be done by raising export duties and lowering both import and excise duties thereby making more goods available. They are progressive in nature i.e. The disadvantages of indirect taxes 1- Indirect taxes do not create civic awareness among senior taxpayers because a person who buys a commodity does not know that he pays taxes to the government. 3. The information on this site is not directed at residents of the United States, Belgium, Canada, Singapore and is not intended for use by any person in any jurisdiction where such use would be contrary to local law or regulation. Import Duties Also known as tariffs, they are imposed on foreign made goods coming into a country. 3- unfair to some because the rich and the poor are buying goods at the same price. As indirect taxes can be spread widely, they are more beneficial and suitable. For example if the tax on a commodity is 10% of the price of the commodity, whether you are rich or poor, you are going to pay the same amount – the same 10%. Indirect taxes do not promote civic consciousness among the taxpayers because the individuals do not feel the burden of the taxes as the taxes are in-built in the prices of the products purchased. This tax is sometimes imposed on services or consumables, and is paid indirectly by the person who wants to consume something. Hence equality of sacrifice can be attained through progression. Indirect taxation can be a very powerful tool in protecting infant or home industries against foreign competition. One of the biggest disadvantages of direct tax is that it encourages people not to work hard since direct taxes are normally progressive in nature, meaning the more income you make, the more tax that one pays. Click to learn more. It has no practical importance. As an Amazon Associate I earn from qualifying purchases. Share Your Word File 2- Uneconomical because its cost is high. When the price is massively increased, consumers can’t afford to buy it like before and this therefore reduces the consumption of cigarettes. This is because they increase the price of goods.
Indirect Taxes Are Regressive in Nature. It is like a sugar-coated quinine pill.
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Of course, the very low incomes can be exempted. It means that though it is imposed on a particular company or supplier that can pass the tax on to consumers, ultimately transferring the burden to the latter. Large administrative staff is required to administer such taxes. It is like a sugar-coated quinine pill. We diligently work to meet the stringent standards set by the JSC in order to put our client's best interests at the centre of our business.
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